Morning Note: Market news and an update from Experian.
Market News
The US dollar climbed toward a one-month high as Treasury yields rose – the 10-year is back to 4% – after hawkish European Central Bank comments pushed back against bets on early and extensive rate cuts. Gold trades at $2,049 an ounce
US equity markets were closed for a holiday yesterday; the S&P 500 are currently predicting a 0.5% decline at the open this afternoon. This morning in Asia, markets were mixed: Nikkei 225 (-0.8%); Hang Seng (-1.9%); Shanghai Composite (+0.3%). China’s $1.24trn sovereign fund vowed to help with risk mitigation and market stabilization in 2024, the latest sign of state companies playing a bigger role in bolstering the ailing stock market.
The FTSE 100 is currently trading 0.4% lower at 7,565. Vodafone is little changed as the company agreed a 10-year partnership with Microsoft to bring generative AI, digital, enterprise and cloud services to more than 300m businesses and consumers across its European and African markets. UK average weekly earnings rose by 6.5% year on year. This was below market expectations of 6.8% and the 7.2% reading the previous month. Sterling slipped to $1.2682 and €1.1610.
Oil trades at $78 a barrel. Rio Tinto announced fourth-quarter iron ore production down 2% but kept its Pilbara shipments forecast for 2024.
Donald Trump won the Republican caucuses in Iowa as widely expected, with the AP and CNN among those calling the victory about 30 minutes after the contest opened. Ron DeSantis finished a distant second, while Vivek Ramaswamy suspended his campaign.
Microsoft is opening up its AI assistant to consumers and making the corporate version available to smaller companies. The $20-a-month version of Copilot has access to the latest ChatGPT technology.
Source: Bloomberg
Company News
Experian has today released results for the third quarter of its financial year ending 31 March 2024, which highlighted performance at the upper end of market expectations. The company has narrowed its guidance for the full year at the top-end of its range and, in response, the shares are up 3% in early trading.
Experian is a global information services company that helps businesses to manage credit risk, prevent fraud, target marketing offers, and automate decision-making. The group also helps individuals check their credit report and credit score and protect against identity theft. The company has credit data on 1.3bn people and 166m businesses. The ownership of such rich, unique, and valuable data has become more important in an increasingly digital world and the group is targeting a total addressable market of more than $140bn.
Experian operates an attractive business model where its customers supply the company with raw credit history data for free. The bureau aggregates it, applies analytics and tools, and sells it back to the customers as a credit report. The industry operates as an oligarchy with high barriers to entry because of large historical databases and regulatory know-how.
The company has shifted from simply selling data to selling enhanced decision tools and analytics software which are essential in automating customers’ decisions, helping to reduce cost, and manage risk. As a result, customer relationships are very ‘sticky’, with renewal rates of 90%, and revenue is very resilient. The business has a long history of weathering uncertainty – notably, revenue grew in organic terms in both 2008 and 2020. Although credit application volumes slow in a recession, we believe the company has a natural hedge of risk management and asset protection products, as well as exposure to healthcare and other defensive segments. Regarding, the potential opportunities and threats posed to the business by AI, we believe the company is well placed given its hard-to-replicate proprietary datasets with scope to accelerate product innovation and increase operational efficiency.
In the three months to 31 December, revenue grew by 7% at constant exchange rates, while in organic terms (i.e., underlying before M&A), growth was 6%. Against an unfavourable macroeconomic backdrop, with tightening credit markets, growth was driven by superior data, new product performance, and successful new business development. Highlights included the progress made across credit risk and fraud prevention, very strong progress in diversifying its business in Brazil, and successful expansions into markets such as health, identity, and verifications.
The group saw growth in every region. In the group’s largest division, North America, which accounts for two-thirds of revenue, organic growth was 5%. Elsewhere, Latin America grew by 13% and EMEA/Asia Pacific was up 7%. Growth in the UK & Ireland was only 3%, held back by soft market conditions.
By division, B2B revenue was up 5% in organic terms as the group helped its clients with their shift to digital, to optimise profitability and better manage risk. Within B2B, Data and Decisioning were both up 5%. The main weakness was in the North American mortgage business (-6%), although strength in other sectors (notably Automotive) more than compensated.
The Consumer Services unit grew by 10% in organic terms, an improvement on the group’s first half, with ongoing strength in Latin America (+26%). The free membership base reached the milestone of 100m in total for the region (Brazil 86m and Spanish Latin America 14m), while the US free membership base rose to 69m.
This was a revenue update, so there was no commentary on profitability or the group’s financial position. As a reminder, the business is very cash generative, and ended its first half to 30 September with financial leverage of 1.8x net debt to EBITDA, below the target range of 2.0x-2.5x. There is no debt refinancing due until September 2024 and over 90% of current debt is at fixed interest rates for the next two years. As a result, the group’s interest rate is only 3%. Cash flow is sensibly reinvested in organic and strategic investments that generate attractive returns.
Experian continues to anticipate another year of growth due to the breadth and the resilience of its portfolio, and significant structural growth opportunities. The group now expects to deliver organic revenue growth of between 5% and 6%, at the upper end of its previous guidance range of 4% to 6% and modest margin accretion, all at constant exchange rates and on an ongoing basis.
Source: Bloomberg