Morning Note: Market news and an update from Experian.

Market News

Trump picking JD Vance as his running mate widens the rift with the foreign policy old guard: Vance says China is the biggest threat to the US and believes in a Rust Belt revival. New US tariffs of 60% on all Chinese exports would more than halve the China’s growth rate, UBS said. Trump was reported earlier this year to be considering a flat 60% tariff — which would cut 2.5 percentage points from the country’s GDP in the year that follows.

Fed Chair Powell said that recent data had raised confidence that inflation is on path to 2%. Traders said two 25bps reductions are fully priced in for 2024, with market-implied odds of a third cut reaching about 60%. The 10-year Treasury yield slipped to 4.20%, while gold moved up to $2,435 an ounce.

US equity markets edged higher last night – S&P 500 (+0.3%), Nasdaq (+0.4%) – boosted by the dovish Fed comments.

This morning in Asia, markets were mixed: Nikkei 225 (+0.2%); Hang Seng (-1.5%); Shanghai Composite (+0.1%). Japanese 10-year swap spreads are at the most negative since 2020 as traders prepare for a possible slowdown in demand from the Bank of Japan.

The FTSE 100 is currently trading 0.4% lower at 8,149, while Sterling buys $1.2970 and €1.1902.

Source: Bloomberg

Company News

Experian has today released an update on trading for the first quarter of its financial year ending 31 March 2025, which highlights good growth, consistent with management expectations. Guidance for the full year has been reiterated and in response, the shares are down 2% 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 1.4bn people and 190m 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 costs, 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, ultimately enhancing margins.

In the three months to 30 June, revenue from ongoing activities grew by 8% at constant exchange rates, while in organic terms (i.e., underlying before M&A), growth was 7%.

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 8%. Elsewhere, Latin America grew by 5% and EMEA/Asia Pacific was up 7%.  Growth in the UK & Ireland was only 2%, held back by soft auto market.

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 up 4% and 7%, respectively. The North American mortgage business bounced back (+37%), with the underlying credit origination environment remaining stable. Automotive delivered strong growth (+9%) reflecting industry marketing activity in response to rising vehicle inventory levels. The Consumer Services unit grew by 11% in organic terms, driven by ongoing strength in Latin America (+24%).

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 the company ended its financial year to 31 March 2024 with financial leverage of 1.7x net debt to EBITDA, below the target range of 2.0x-2.5x.

Cash flow is sensibly reinvested in organic and strategic investments that generate attractive returns. The company has a good track record of growing its dividend – in the last financial year, the payout was raised by 7%.

In a separate release, the group has announced that Craig Boundy, its well-respected Chief Operating Officer, has notified the company he is to leave to take up a new role as CEO of McAfee Corp.

For FY2025, the group continues to expect to deliver organic revenue growth in the range of 6%-8% and good margin expansion, in the range of 30-50 basis points, at constant currency. Looking further ahead, the company expects the combination of economic recovery, continued new product and vertical market expansion, as well as productivity gains from technology cloud transition to elevate its financial performance.

Source: Bloomberg