EUR 850.00 For Business Accounts Only

Morningstar | RELX continues its transition into a business with both a moat and growth opportunities.

Over the past decade, RELX has undergone wholesale changes to the structure of the company, taking its exposure to electronic-format businesses from 35% to more than double this figure. This change was achieved primarily through a series of targeted acquisitions and disposals, such as that of data aggregator ChoicePoint in early 2008, which subsequently burdened the company with significant debt service costs. Despite these challenges, the company has managed to significantly drive operating margin growth with the improved business mix. Since 2005, operating margins have expanded by close to 50%. This has also been reflected in returns on invested capital, which have increased from 10.4% in 2006 to 17.7% in 2017, against a weighted average cost of capital of just 8.3%.With 52% of RELX’s revenue now subscription-based, less than 2% of total revenue derives from the more cyclical area of advertising. We believe three out of four of RELX’s businesses are moaty in nature and should continue to benefit from long-term structural drivers. In scientific, technical, and medical, and in the risk and business analytics division, we believe increased regulation and the requirement for specialist knowledge will continue to drive clients to RELX’s product suite, while in RELX’s legal division, we believe increasing legislation and litigation will continue to drive demand for high-quality products and services such as those of LexisNexis. The exception to our optimism lies in the company’s exhibition business. While we acknowledge the relatively attractive margins stemming from efficiency benefits that come with being the global number-one player, we ultimately see this business as being highly cyclical, and do not see any clear linkage or synergies with the rest of the businesses within the group.As with peer Wolters Kluwer, we are also cognisant of the inherent risks in RELX’s strategy. As the company has moved from being a print-publishing business with relatively few competitive pressures to a digital information business, it must keep innovating to stay ahead of existing and new competitors.