EUR 850.00 For Business Accounts Only

Morningstar | We expect a moderate, incremental pickup in top-line growth and operating margin for Wolters Kluwer.

Wolters Kluwer has undergone a wholesale reorganisation of its business over the past decade or so, taking it from being the leading print publisher of professional information materials to being one of the largest players in the potentially much larger digital information services space. This change has come at a cost, however, with the company spending over EUR 2 billion on net acquisitions over the period in order to position itself better in the digital information services market. Wolters’ legacy print business, which is declining at a high-single-digit rate each year, has proven to be a drag on the overall business, with organic revenue growth for the group topping out at 3% for the last three years.We believe the inflection point for Wolters Kluwer has now been reached, as revenue from print has fallen to just 13% of the group in 2017, down from 52% in 2004. With print revenue now posing less of a drag on the group, and the company’s more scalable elements gaining traction with clients, we believe organic revenue growth should increase linearly, albeit modestly from here. Recurring revenue across the group has also increased materially and currently stands at 76% of total revenue for 2017, increasing the stability and predictability of the underlying revenue base. These factors have also resulted in material improvements in operating margins across key verticals. Examples of this can be seen in core products such as UpToDate in the clinical solutions business, which is currently growing at double-digit rates, driving operating margins within the health business to all-time highs. As the company moves up the value chain in the information services it offers to clients, we believe further enhancement to margins across a variety of business activities is eminently possible.However, we are aware of the inherent risks in Wolters' strategy, as the company has moved from a print-publishing business with relatively few competitive pressures to a digital information business in which it must keep innovating to stay ahead of existing and new competitors.