Action of the week: RELX
As this week has been devoted to all income related to Morningstar.co.uk, we gave our twitter followers the choice of four dividend-paying stocks that experienced strong share price increases in 2021.
Among those posting gains of 20% or more, information and data company RELX (REL) edged out Johnson Matthey, CRH and Reckitt Benckiser. All of these stocks are on our monthly top-grossing FTSE 100 dividend list, but RELX is rooted at the bottom of that chart because it has a 2% return, compared to around 9% for Imperial Brands and British American Tobacco. This is not surprising because the rise in the share price drives the return down – the RELX share price is up 25% this year and almost 33% since the end of November 2020, and the yield is about 2%.
RELX (pronounced Rel-ex rather than RELX) changed its name from Reed Elsevier to its more traditional sound in 2015 and embraced the digital data revolution. Reed Elsevier himself was a merger of British and Dutch science publisher Reed (an Anglo-Dutch divorce is currently underway at Royal Dutch Shell). Traditional textbooks and directories are still printed, but the share of electronic formats produced by the company has increased from 30% to 90% in 10 years.
Customers include businesses, governments, and universities, with recurring subscriptions being the primary payment model. “The vast majority of RELX’s revenue comes from providing data and analytics to corporate clients around the world. Over a period of many years, RELX has developed sophisticated databases and decision-making tools that many industries and professions now rely heavily on to conduct their day-to-day operations, ”says Michael Field, Morningstar Analyst .
RELX is listed in London, Amsterdam and New York, and has four main divisions: scientific, technical, medical (nearly 40% of sales); risk and business analysis; legal; and exhibitions, which represent 5% of turnover. A quick glance at the profile of the stock price chart suggests that this company is no old growth income companion. With online data being the invaluable new resource for companies, this kind of high growth comes at a high price, and RELX stocks are currently rated 1 star by Morningstar analysts. The shares are currently trading at £ 23.50, but they have a fair value of £ 16.50, according to analyst Michael Field. After the latest third quarter results – which he called strong – he reiterated the fair value estimate of £ 16.50, saying “stocks are currently worth little, standing at over 20% above their pre-pandemic levels ”.
Looking in detail at the latest third quarter results, the Risk and Business division posted the highest growth, with revenues up 10% compared to the same period last year. The company’s exhibition business was affected by the lockdown last year, like many others in this area, but the reopening of the global economy this year has helped relieve RELX, Field said. The turnaround in the exhibits side may take longer than expected to return to near-2019 levels, Field adds. On the positive side, large companies in this space will benefit from reduced competition in the years to come. “With a reduced cost base and many abandoned competitors, we believe the division will be in good shape going forward,” he said.
RELX has a narrow economic gap due to the strength of its brand and reputation as well as the cost factor of moving from a business / university to a competing data provider. Field says three of RELX’s four divisions deserve a ditch, with the exception of exhibits, which, aside from the pandemic, are more vulnerable to cyclical fluctuations in the global economy. During downturns, for example, businesses tend to cut back on advertising and event spending.