Morning Note: Market news and results from Experian.

Market News

The dollar continued its recent strength in the aftermath of the Trump election victory, while Treasury yields remain elevated – the 10-year is currently 4.44%. Traders are now braced for the October consumer price index report (out later today – 2.6% expected) which could shape the outlook for Federal Reserve interest rate cuts. Markets are currently pricing in about a 60% chance of a 25 basis point rate cut in December, down from 84% a month ago. Gold has recovered a touch from a 2-month low and currently trades at $2,605 an ounce.

US equities paused last night – S&P 500 (-0.3%); Nasdaq (-0.1%) – with a rotation into large cap quality/tech away from small cap stocks.

In Asia this morning, stocks generally remained weak – Nikkei 225 (-1.7%); Hang Seng (-0.1%); Shanghai Composite (+0.5%) – on concerns Trump’s proposed tariffs and picks for key administration positions may stoke inflation. He named Elon Musk and Vivek Ramaswamy to lead a new Department of Government Efficiency tasked with dismantling bureaucracy and slashing regulation. He nominated Fox News host and Army veteran Pete Hegseth as his defense secretary. The yen approached the key level of 155 per dollar.

The FTSE 100 is currently little changed while Sterling trades at $1.2731 and €1.2013.

Brent Crude trades at $71.80 a barrel, while Morgan Stanley has cut its forecast on an expected glut next year. The European gas price rose to its highest level in a year as the cold snap saps inventories.

In France, lawmakers have rejected an amended budget bill, while the Bank of France predicts zero growth in the final months of year as political turmoil in the country adds to business uncertainty. The unemployment rate has risen to 7.4%, in line with expectations.

Source: Bloomberg

Company News

Experian has today released its financial report for the six months ended 30 September 2024 and nudged up its guidance for full-year margin growth. The shares have had a good run this year and have seen a little profit taking 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 six months to 30 September, revenue for ongoing activities grew by 7% at constant exchange rates to $3.6bn. In organic terms (i.e., underlying before M&A), growth was also 7%, in line with the full-year guidance range of 6%-8%. Growth was driven by new product innovation, client wins, and consumer expansion, despite a credit supply backdrop that remains subdued. Highlights include strength in Fraud, Health, Automotive, and Targeting.

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

By division, B2B revenue was up 6% in organic terms, with a slight acceleration in the second quarter. 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 7%, respectively.

The Consumer Services unit grew by 9% in organic terms, with a slowdown in the group’s second quarter reflecting the timing of one-off data breach revenue. Growth was driven by ongoing strength in Latin America (+27%). The company now serves over 190 million free members.

‘Benchmark’ operating profit from ongoing activities grew by 10% to $1,011m, with the margin up by 60 basis points on a comparative basis to 28.0% as productivity initiatives more than offset the cost of growth investment. ‘Benchmark’ EPS rose by 9% to 76.0c.

The business is very cash generative, with conversion of 71% in the seasonally weaker half of the year. The group ended the period 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. Capital expenditure focused on data, technology, and new products represented 8% of revenue and the group invested $818m in acquisitions to support strategic growth. The first-half dividend was raised by 7% to 19.25c and the group spent a net $95m of its $150m share repurchase programme.

For FY2025, the group continues to expect to deliver organic revenue growth in the range of 6%-8%. However, based on progress to date, the group now expects margin expansion to be 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