EUR 850.00 For Business Accounts Only

Morningstar | Experian Delivers Strong First Half, Consumer Business Continues Rebound

Overall, we think Experian’s first-half results were impressive. While there are still issues in some parts of the business, we see ongoing signs that Experian is moving past recent headwinds. We will maintain our GBP 1,940 and $25.50 fair value estimates and wide moat rating.

The core U.S. credit bureau business had a good first half, with North American revenue up 10% year over year on an organic basis. Management noted that trended data and big data played a role in the strong growth. While some have worried about the potential for big data to supplant traditional credit scoring, we have always believed that big data would instead be supplementary and beneficial, and management’s comments indicate that the company is figuring out ways to monetize this area.

The North American consumer business was up 8% year over year. Experian has reworked its strategy in this area given the evolution of the marketplace, and its strategy is showing early signs of success. Its identity-protection service is up to 280,000 clients, with a $60 million annual revenue run rate. CreditMatch, its offering that mimics Credit Karma, is very early innings but saw triple-digit growth. We continue to believe that Experian’s choice to compete with upstarts such as Credit Karma, instead of partnering like its peers, should allow the company to generate more value over time, although it is a less profitable choice today.

U.K./Ireland remains somewhat pressured, with only 3% year-over-year growth, driven largely by a 6% decline in the consumer business. However, the consumer business in this region is in an earlier stage of recovery, and the company’s success in turning around North American operations creates confidence that they will be able to replicate this success.

Latin America was a bit of a drag, up only 4% year over year. Management attributed the softness mainly to macroeconomic conditions. EMEA/Asia-Pacific was up 13% year over year, although this region remains unprofitable given the more nascent stage of operations. While we think conditions in specific countries will lead to some volatility in the near term and we don’t see anything will move the needle in a major way over the next couple of years, we continue to believe that the most value-creative long-term opportunity for Experian and its peers lies in replicating the credit bureau business model in emerging markets.

Operating margins came in at 27.5%, a 10-basis-point decline over last year. Excluding the impact of currency, margins would have improved by 20 basis points. We think the scalable nature of the business model should allow for modest but sustainable margin expansion over time.