Morning Note: Market news and an updates from Experian and Diploma.

Market News

Producer price index (PPI) inflation came in lower than expected. Headline PPI was 0.2% vs. 0.4% expected, while core PPI was flat vs. 0.3% expected. The focus today is on CPI inflation. The dollar gauge steadied after dropping 0.4% in the previous session. The 10-year Treasury yields 4.77%, while gold moved up to $2,684 an ounce.

US equities were little changed last night – S&P 500 (+0.1%); Nasdaq (-0.2%) – with Mega Cap Tech falling for the sixth day in a row, closing below its 50-day moving average. Bloomberg reported that Microsoft is freezing hiring in consulting unit amid cost cutting efforts, while Meta is to cut roughly 5% of staff in performance-based reduction. The banks kick off the reporting season today, with updates from Citigroup, JPMorgan, Goldman Sachs, Bank of New York Mellon, and Wells Fargo. The focus is on possible declines in net interest income.

In Asia this morning, equities were mixed: Nikkei 225 (-0.1%); Hang Seng (+0.3%); Shanghai Composite (-0.4%). The yen strengthened after Kazuo Ueda said the BOJ will discuss raising rates next week. The FTSE 100 is currently trading 0.7% higher at 8,256. UK CPI came in at 2.5%, a shade below the 2.6% expected. Services inflation was 4.4% vs. 4.8% forecast. Sterling rallied to $1.2231 and €1.1867.

On the geopolitical front, CBS reported that Israel and Hamas agreed in principle to a ceasefire draft deal and hostage release. Implementation may begin as soon as this weekend. Brent Crude slipped below $80 a barrel. According to the EIA, global oil markets will face a widening glut in 2026, an 800,000 barrel a day surplus, as OPEC brings back production and output from the US, Canada and Guyana continues to grow. The EU is considering import restrictions on Russian aluminum imports and phasing out LNG.

SGS is in advanced talks to combine with Bureau Veritas, creating a European testing and certification firm valued at almost $33bn, people familiar said.

Source: Bloomberg

Company News

Experian has today released its financial report for the three months ended 31 December 2024 and confirmed its guidance for the full-year to 31 March 2025. The shares have drifted back over recent months and have been marked up by 1% this morning.

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 latest quarter, the group delivered another strong performance, with revenue for ongoing activities up 8% at constant exchange rates. In organic terms (i.e., underlying before M&A), growth was 6%, in line with the full-year guidance range of 6%-8%. Excluding data breach services, organic revenue grew 8%, maintaining recent strong performance and reflecting good underlying business trends. Growth was driven by new product innovation, client wins, and consumer expansion.

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 6%. Elsewhere, Latin America and EMEA/Asia Pacific grew by 8% and 9% respectively. Growth in the UK & Ireland was only 1%, held back by a subdued economic backdrop.

By division, B2B revenue was up 6% in organic terms Growth was driven by analytics, mortgages, and a strong performance in North America verticals 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 6% and 5%, respectively.

The Consumer Services unit grew by 5% in organic terms, held back by the timing of one-off data breach revenue. Growth was driven by ongoing strength in Latin America (+22%). The company now serves over 190 million free members.

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 half-year to 30 September 2024 with financial leverage of 2.0x net debt to EBITDA, at the lower end of 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 half-year, the payout was raised by 7% – and is buying back its own shares.

For FY2025, the group continues to expect to deliver organic revenue growth in the range of 6%-8% and margin expansion at the upper end of 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 drive strong financial performance.

Source: Bloomberg

Diploma has this morning released brief trading update for the three months to 31 December which highlights continued strong performance in line with management expectations. Full-year guidance has been confirmed. The shares have been a very strong performer, and despite a lack of new news in today’s update, they have been marked up by 3% in early trading.

Diploma operates a decentralised collection of distribution businesses which supply specialised industrial and healthcare products and services to a wide range of niche end markets, in which service, rather than price is the key reason business is won and retained. The focus is on the supply of low cost, but essential products, such as a seal for a hydraulic cylinder. Most of the revenue is generated from consumable products, usually funded by the customers’ operating budgets rather than their capital budgets, providing a recurring revenue base. By supplying essential solutions, not just products, Diploma has built strong long-term relationships with its customers and suppliers, which support attractive and sustainable margins (c. 20%) and consistently strong cash flow.

The strategy is to build high-quality scalable businesses that deliver sustainable organic growth. Acquisitions are an integral part of the strategy, with a disciplined focus on acquiring value-added businesses in fast growing niches, with great management teams, to accelerate organic growth and generate attractive returns on investment.

In the latest quarter to 31 December, performance has been strong and in-line with management expectations. Organic revenue growth 7%, with underlying trends across all three divisions – Controls, Seals, and Life Sciences – broadly consistent with the prior year. Reported revenue growth was 12%, with a 7% contribution from acquisitions partly offset by a 2% headwind from foreign exchange.

As expected, there was little detail on the group’s profitability and financial position in today’s statement, other than to highlight that the operating margin remains strong, in line with management expectations. The company is financially strong – at the last balance sheet date (30 September 2024), gearing was 1.3x net debt to EBITDA, well below the 2.0x target.

Acquisitions continue to be an integral part of the group’s growth strategy, with recent deals onboarded smoothly. The group remains disciplined in its approach to acquisitions and has a strong pipeline diversified by sector, size, and geography.

Guidance for the full year to 30 September 2025 has been reiterated:

- organic revenue growth of 6%.

- contribution from net acquisitions made so far of 2%.

- operating margin of 21%, in line with last year’s 20.9%.

Source: Bloomberg