Morningstar | Slow and Steady Wins the Race for Wolters Kluwer in 1Q
Narrow-moat Wolters Kluwer offered up a solid first-quarter trading update, with organic revenue growth of 4% and operating margin improvement year over year. Net debt/EBITDA also declined marginally and now stands at 1.7 times. These numbers are in line with our general expectations for the full year, and as such we do not expect to make any changes to our forecasts. We reiterate our EUR 47 fair value estimate and believe the current share price is a bit rich.Thanks to the presence of an extremely stable and predictable business model, there was little in the way of surprises in these results. The only exception to this was in the legal and regulatory division, where organic revenue growth rose to 3% in the quarter. This is a welcome departure from the 1% growth delivered in 2018 and negative numbers posted for the four years preceding that. This sharp pickup in growth comes on the back of the changing mix of products within the division, as the focus slowly shifts away from print and database products to software and decision-making tools. In 2016, Wolters acquired Enablon, a leading compliance-based tool and a prime example of the types of products driving higher levels of revenue growth in the division. We believe this continued mix shift should allow the company to improve upon its already solid top-line growth rate while incrementally improving operating margins over time. We also believe that the shift toward higher-value products and services should put further distance between the company and less capable peers, reinforcing its narrow moat.
Wolters Kluwer operates through four divisions: Health is a global provider of information for medical and health professionals; Financial & Compliance Services is a U.S. provider risk management, compliance, finance, and audit professionals the services they need to optimize risk and business performance, and ensure compliance with local, regional, and global regulation; Tax & Accounting is a provider of tax, accounting, and audit information, and services; and Legal & Regulatory provides customers with expert content, software, and services in the areas of law, business, and regulatory compliance in Europe, North America and Asia Pacific.
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