RELX PLC RELX
November 02, 2021 - 11:39am EST by
eigenvalue
2021 2022
Price: 23.03 EPS 0.9 1.11
Shares Out. (in M): 1,928 P/E 25.4 20.7
Market Cap (in $M): 44,344 P/FCF 25.4 20.7
Net Debt (in $M): 5,550 EBIT 2,100 2,800
TEV ($): 49,900 TEV/EBIT 21 17.8

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Description

I recommend the purchase of RELX PLC.   All figures in UK pounds (GBP).

 

Thesis

 It is a company that is transforming from a business that has been growing topline at 4% per annum on an organic basis, to a firm that will be able to grow revenues at 5-6% per annum, operating income at 6-7% per annum on an organic basis, with triple digit returns on marginal capital. 

RELX is selling at a 5% free cash flow yield on my forecast 2022 results and will have debt / EBIT of around 2.0 on 12/31/2021.  I think that the stock is worth almost three times what it is selling for in the current interest rate environment, if I am correct about future prospects of the business.

Insiders seem to agree, with three separate ones having bought more than USD 1MM worth of stock in total over the past several months at around today’s price. 


Why the opportunity exists

Slower growing and declining business units, as well as covid-19 hit exhibitions business masked fast growth: 8%+ per annum over the past decade in the risk division – 36% of revenues on 2021 numbers and 45% of operating profits. 

 

Description of the business

Global provider of information-based analytics and decision tools.  With three main divisions and an exhibitions business.

Risk division – 36% of revenues H1 2021, 45% of operating income, 10% underlying revenue growth in the first nine months of 2021.  Roughly 8% annual underlying revenue growth over the past decade.  At its analyst day on October 6th 2021 the company forecast this type of revenue growth for at least a decade.

 

Scientific, Technical and Medical – 37% of revenue H1 2021, 4% underlying revenue growth in the first nine months.  Historically revenue growth was hurt by transition from print to digital.  Should be able to grow at around 4% per annum. 

 

Legal – 23% of revenues in H1 2021, with 3% underlying revenue growth. Historically revenue growth was hurt by transition from print to digital.  Should be able to grow at around 4% per annum. 

 

Exhibitions – 4% of revenues in H1 2021, used to be 14% of revenues before Covid-19.  Once it recovers,

 

Historical financials and Capital structure

Debt = GBP 6.316bn including leases & pensions, and L 5.64bn excluding leases and pensions on 06/30/2021.  I expect it to = L 4.85bn on 12/31/2021.  I exclude pensions and leases from 12/31/2021 projection.

Shares o/s = 1.928bn on 06/30/2021

Tax rate historically been under 20%. 

 

Future projections

Assuming 10% underlying revenue growth in the risk division, 4% underlying revenue growth in the other two divisions, and the exhibitions business reaching its 2019 revenues with slightly improved profitability, I expect 2022 EBIT = L 2.8bn.

Post 2022, I expect underlying revenue growth = 5.5-6%, driven by 8-9% growth in the risk division, and 4% elsewhere.    I expect operating income growth = 6-7% since risk division is higher margin.  EPS growth will be higher due to some financial leverage and share buy-backs. 

Interest = L 110MM, based on 2% interest rate and L 5.55bn of debt on 12/31/2021.

Tax rate = 20%.  

EPS = GBP 111 in 2022. 

 

 

Capital allocation

Historically, company made tuck-in acquisitions, paid dividends, and bought back stock.

 

Management

No particular opinion, seem o’k, but I have not met them. 

 

Catalyst:

 

Faster top-line growth, establish the company as a 5-6% revenue and nearly double-digit EPS grower.  Resumption of share buy-backs.  

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Faster top-line growth, establish the company as a 5-6% revenue and nearly double-digit EPS grower.  Resumption of share buy-backs.  

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