Morningstar | WKL Updated Forecasts and Estimates from 24 Aug 2018
Narrow-moat Wolters Kluwer published a decent set of first-half results with organic revenue growth of 4%, a material pickup from the 3% level delivered for the past three full fiscal years. Operating margins also picked up by 40 basis points and net debt/EBITDA fell to 1.7 times, down from 1.9 times at the end of 2017. As these numbers were broadly in line with our full-year expectations, we do not expect to make any material changes to our forecasts or to our EUR 44.50 fair value estimate. We believe the shares are fairly valued.Divisionally, there were very few surprises, with the mix shift benefiting margins in the health division and in governance, risk, and compliance, as higher-margin digital businesses grow more quickly than legacy print ones; in the latter division, efficiency savings are also having the desired effect. Wolters Kluwer’s legal and regulatory business saw organic revenue growth of 2% over the period, while management has guided to slightly positive growth for the full year. If this is the case, it will be the first year of positive growth following four straight years of revenue declines, as print-based revenue within the division (37% of revenue) has continued to drag down growth on a divisional level. As print products continue to decline and the mix shift continues across the broader business, we forecast moderate but incremental margin improvement on a group level, combined with a slight pickup in top-line growth.
Wolters Kluwer has managed the shift from print to digital very effectively over the past decade or so, and its current focus on value-added services, such as decision-making tool UpToDate, should help it slowly improve margins in the medium to longer term and increase its exposure to recurring revenue, which currently stands at almost 80% of group revenue.
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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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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