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RELX vs Experian: a tough choice between two FTSE darlings

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RELX LON:REL has been showing investors a very solid return recently, with shares up over 66% in two years and 38% in the 12 month picture. We’ve seen a very steady appreciation from this UK large cap stock, with little in the way of volatility and steady revenue growth.

RELX shares have outperformed the FTSE 100 index for 12 out of the last 13 years. Much of the company’s success is attributable to its conservative – but well remunerated – CEO Erik Engstrom. RELX, once known as Reed Elsevier until a re-brand in 2015 – is still regarded as one of the top performing stocks in the history of the FTSE 100. Under the leadership of Engstrom, the share price has risen 650% approximately.

RELX is also a darling of fund manager Nick Train, who looks after the Finsbury Growth & Income Trust: “A smart shareholder asked me recently – which of your holdings really has the potential to double or treble profits over the next decade or more and, as a result, become a much bigger market capitalized company and higher share price? My answer was that amongst the large-cap holdings it is readily conceivable that RELX and Sage have truly transformative profit potential ahead.”

RELX remains a solid earner for investors

Like Nick Train I don’t really see any sign of RELX slowing down anytime soon. Its latest results were again excellent and the company scored well on net capital expenditure and in EBITDA terms. RELX continues to see modest revenue growth and managed to raise its EPS figure by 5.3% compared with the same quarter last year.

RELX subsidiary, Reed Exhibitions, recently sold Gamer Network to IGN Entertainment. This was good news for Gamer Network, as IGN looks to me like a better home for it, especially as it will allow Gamer Network to acquire further exposure in the lucrative American market. Reed wanted to part with the company in order to stay focused on growing its events business.

EBITDA margin growth for RELX of 30.8% is great, and maintains the company’s solid track record in this respect. The return on equity ratio at 49.7% is arguably the best you will see in this sector, and well ahead of close peer Experian (of which more below).

Closest competitor: Experian

Experian LON:EXPN is the closest stock peer to RELX in my view, and has also been performing very well. Performance wise, we did see a bit of a dip in Experian shares back in October, and the stock does show a little more volatility in its behaviour than RELX. Experian is also experiencing consistent revenue and income growth and is keeping investors very happy. Experian stock also happens to look a little bit cheaper than RELX.

Investors also like the work Experian is doing in terms of cloud-based delivery of services to its enterprise customers. Its recent presentation of its Ascend Technology Platform, which combines a ton of software tools into a single platform, impressed analysts and business leaders last month.

Experian also recently announced a $150m equity buy-back of 7m shares.


Things to watch with RELX

The RELX PE ratio is starting to creep up. Investors obviously love RELX, for many of the reasons cited above, but the shares are starting to look a little more expensive versus media sector peers like Experian. But still, these are not tech sector valuations. There has been a marginal decrease in RELX free cashflow, but nothing to worry about, especially as management returned £285m to shareholders in the form of dividends and stock repurchases.

Final thoughts on RELX shares

RELX is not an exciting stock, but it is a very solid performer, and does seem to owe much to the leadership style of its CEO. Investors seem to have benefited from a slow and steady appreciation in the RELX share price with little volatility and a predictable dividend stream. What’s not to like here? I guess the only problem is making a choice between RELX and Experian, which is a tough one.

With thanks to the team at Bridgewise for their assistance with this article.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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