RELX: No Surprises | Seeking Alpha

Elevator Pitch

RELX PLC (NYSE:RELX) [REL:LN] is awarded a Maintain funding ranking.

My earlier article printed on December 1, 2023 drew consideration to 2 of the corporate’s companies, or extra particularly, its Threat and Exhibitions enterprise items. For the present write-up, I analyze RELX’s most up-to-date set of outcomes, and assess its outlook referring to income & working earnings development and capital return.

There have been no surprises with RELX’s newest 2H 2023 monetary efficiency, which explains why the corporate’s shares hardly budged after its outcomes launch. Wanting ahead, RELX’s estimated FY 2024 shareholder yield of three.5% is fairly good, however the firm is more likely to witness development deceleration for the present 12 months. Following an analysis of RELX’s outcomes and prospects, I select to retain my Maintain ranking for the inventory.

2H 2023 Efficiency Met The Market’s Expectations

On February 15 earlier than the market opened, RELX introduced the corporate’s monetary outcomes for the second half of final 12 months. RELX’s shares had been flat on the day of the corporate’s newest outcomes announcement, which indicated that its precise monetary efficiency did not shock the market.

In its 6-Okay submitting issued on February 15, 2024, RELX disclosed that its prime line and normalized working earnings grew by +1.7% YoY and +6.9% to YoY to £4,662 million and £1,544 million, respectively in 2H 2023. RELX credited its fairly good working revenue development to its “technique of driving steady course of innovation to handle price development beneath income development” and the “restoration in face-to-face exercise” within the firm’s 6-Okay submitting.

RELX’s normalized working revenue margin improved by +160 foundation factors YoY from 31.5% in 2H 2022 to 33.1% for 2H 2023, which serves as a validation of the corporate’s success in optimizing bills through “course of innovation.” Additionally, its Exhibitions Phase’s working earnings elevated by +41.7% YoY to £146 million within the second half of the prior 12 months because of the continued restoration from the COVID-19 pandemic, which had beforehand led exhibitions to be both cancelled or postponed.

Sadly, the corporate’s newest outcomes had been just like what the analysts had anticipated. RELX’s precise 2H 2023 gross sales had been marginally or -0.6% decrease than the promote aspect’s consensus income projection of £4,689 million (supply: S&P Capital IQ). However, the corporate’s normalized working revenue for the latter half of 2023 was +1.4% higher than the market’s consensus non-GAAP working earnings estimate of £1,522 million as per S&P Capital IQ knowledge.

Contemplate Slower Progress And Shareholder Capital Return

RELX’s prospects are combined, if one appears past the corporate’s in-line 2H 2023 outcomes.

On one hand, the market sees RELX reporting a modest tempo of prime line and working earnings development in 2024, which I feel is cheap. In different phrases, my view is that RELX’s 2024 outcomes will not throw up any main constructive surprises.

As per consensus estimates sourced from S&P Capital IQ, the promote aspect initiatives that RELX’s income development in pound sterling phrases will decelerate from +7.1% final 12 months to +5.7% this 12 months. The analysts additionally forecast that the corporate’s working earnings growth will gradual from +12.9% to +6.8% over the identical time interval. As a comparability, RELX’s historic prime line and working revenue CAGRs for the FY 2015-2019 timeframe previous to the pandemic had been +6.4% and +7.5%, respectively. This means that the corporate’s anticipated development charges for FY 2024 are barely inferior to what it has achieved prior to now.

At its 2H 2023 earnings briefing, RELX confused that the “shift in our enterprise combine in direction of increased development analytics and choice instruments” would be the most crucial development driver for the corporate within the intermediate to long run. However it is very important word that it’s going to take time for RELX’s “enterprise combine” optimization efforts to be mirrored in its precise monetary outcomes. RELX defined at its newest outcomes briefing that almost all of its companies enter into multi-year agreements with their respective shoppers, so the upselling of latest choices will sometimes happen upon the expiry of current contracts. This explains why RELX’s monetary outlook for FY 2024 would not replicate a major enchancment as in comparison with historic development traits.

However, RELX’s anticipated FY 2024 shareholder yield is first rate.

The corporate’s capital allotted to share repurchases grew by +60% from £500 million in 2022 to £800 million in 2023. Wanting forward, RELX has guided for share buybacks amounting to £1 billion for the present 12 months, which interprets right into a share buyback yield of 1.6%.

The chance of RELX allocating a larger-than-expected proportion of capital to acquisitions on the expense of share repurchases is low, contemplating the corporate’s current administration feedback. RELX famous at its most up-to-date earnings name that “there’s nothing totally different within the (M&A) pipeline and vary of alternatives that we see at the moment than regular.”

RELX’s consensus FY 2024 dividend yield is 1.9% as per S&P Capital IQ knowledge. RELX’s dividend distributions for the present 12 months are supported by the corporate’s reiteration of its 50% dividend payout coverage, as indicated in its earnings presentation slides.

RELX might doubtlessly provide a fairly first rate shareholder yield (sum of dividends and buybacks divided by market capitalization) of three.5% for fiscal 2024.

In a nutshell, the three.5% shareholder yield for FY 2024 might present assist for the corporate’s share value, despite the fact that RELX is predicted to register a slower tempo of income and working revenue development this 12 months.

Closing Ideas

I stick with my current Maintain ranking for RELX. The corporate’s 2H 2023 outcomes had been in step with the consensus forecasts, and I do not count on constructive surprises with RELX’s FY 2024 efficiency.

The market seems to have already priced in RELX’s “enterprise combine” optimization to a big diploma, despite the fact that that is nonetheless a work-in-progress, as I highlighted within the earlier part. RELX’s present consensus subsequent twelve months’ normalized P/E of 27.0 instances (supply: S&P Capital IQ) is simply barely beneath its 10-year peak P/E ratio of 27.9 instances.

RELX’s 3.5% shareholder yield is sufficiently first rate to warrant a Maintain ranking, however it’s arduous to justify a Purchase ranking contemplating its 2024 monetary outlook and its present valuations.