EUR 850.00 For Business Accounts Only

Morningstar | RELX Doesn't Disappoint in First Half

As per usual, there were very few surprises from publishing colossus narrow-moat RELX, with underlying revenue growth of 4%, operating profit growth of 6% and earnings growth of 7%, very much in line with the 4-6-8 model that investors have come to expect of late. The first-half numbers were also on track to meet our full-year forecasts; as such, we do not expect to make any material changes to our numbers or to our GBX 1,510 fair value estimate. We believe the current share price is fully up with events.

The underlying growth patterns within the various divisions differed little from those we have witnessed in recent years. The one standout was in scientific, technical, and medical, in which top-line growth picked up slightly to 3% in the first half, from the 2% reported for the past eight straight years. This is a result of changes in the mix of activities within the division and in the group, which is shifting slowly but incrementally towards higher-growth areas such as decision-making tools from print-based products. While RELX, with a market capitalisation of around GBP 35 billion, is a big beast, we believe this shift in business mix will be enough to nudge the group's top-line growth rate from 4% in 2017 to closer to 4.5% by the end of our explicit forecast period. We believe this shift in activity mix is also contributing to an increase in operating margins, which on an adjusted basis improved by 50 basis points year over year to 31.5%.

Higher-value products such as decision-making tools not only differentiate RELX from smaller, less-resourced peers, but also increase subscription-based revenue streams and client integration, ultimately creating a more stable, more predictable, and higher-margin business model. With a consistent capital expenditure/sales ratio of around 5% and further resources committed to small digital bolt-on acquisitions, we believe RELX should be able to retain its strong market position.