Morning Note: Market news and results from Experian.

Market News?

US equity markets drifted lower last night – S&P 500 (-0.6%); Nasdaq (-0.2%) – as investors waited for news on the debt-ceiling discussions. This morning in Asia, Japanese benchmarks extended gains (Nikkei 225, +0.8%) on better-than-expected GDP. Japan may be on cusp of a once-in-a-decade bull market, Goldman said. Other Asian markets were more subdued: Hang Seng (-1.2%); Shanghai Composite (-0.4%). The FTSE 100 is currently trading 0.3% lower at 7,723.

The 10-year Treasury currently yields 3.53%. Sterling buys $1.2453 and €1.1471. Brent Crude steadied at $74.20 a barrel. US stockpiles rose 3.7m barrels last week, led by a 2.9m surge at Cushing, the API is said to have reported. Gold traded near a two-week low – $1,990 an ounce – while most base metals advanced.

President Biden and congressional leaders said they’re optimistic about a deal to raise the debt ceiling even as Kevin McCarthy warned the two sides remained far apart. Yesterday’s talks yielded agreement on a new system for staff-level discussions.

Fed officials are open to a June pause, but also haven’t ruled out further hikes. Lorie Logan noted there may be a need for a “slower pace of tightening,” while John Williams signalled a wait-and-see approach as he called for assessing the impact of action already taken. Raphael Bostic said the FOMC will need to be resolute in its inflation fight.

Economists are split over whether weaker-than-expected Chinese economic data for April redefine the growth outlook for the entire year. Last year’s low base makes it easier to achieve solid growth in 2023, and StanChart still sees an expansion of 5.8%. But JPMorgan and Barclays disagreed, reducing their forecasts for this year.

Company News - Experian

Experian has today released its results for the financial year to 31 March 2023. Although the figures were better than expected, guidance for the current year was a little underwhelming. In response, the shares are down 5% 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.?Experian is a UK-listed FTSE 100 stock but declares its results in US dollars.

During the latest financial year, the group delivered strong results reflecting a combination of new business wins, new products, and expansion into higher growth markets.?Revenue from ongoing activities grew by 8% at constant exchange rates to $6.6bn. In organic terms (i.e., underlying before M&A), growth was 7%, at the bottom end of its guidance range of 7%-9%. Growth in the final quarter was also 7%, despite a deceleration in some of its volume-based businesses.?

By division, B2B revenue was up 6% in organic terms, driven by new business wins, superior data and new product performance 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 5% and 8%, respectively.

The Consumer Services unit enjoyed another period of strong growth, with revenue up 11% in organic terms, as the group targeted new value pools with broader propositions. The group now serves 168m free members, up 23m year-on-year.

The group saw growth in every region, in many cases outperforming its underlying markets substantially. Experian continued to generate robust organic growth (+7%) in its largest division North America, accounting for two-thirds of revenue. Elsewhere, Latin America enjoyed significant expansion, up 16%, while the UK & Ireland grew by 5% and EMEA/Asia Pacific was up 3%.

‘Benchmark’ operating profit from ongoing activities grew by 9% to $1.8bn, with the margin up 30 basis points in underlying terms to 27.4%, at the top end of management expectations. ‘Benchmark’ EPS rose by 9% to 135.1c.

Cash performance was robust, with conversion of 98%. The group ended the period 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.

Cash flow is sensibly reinvested in organic and strategic investments that generate attractive returns. Capital expenditure on data, technology, and new products amounted to 9% of revenue in the year, and the group continued to expand the reach of its portfolio through $480m of acquisitions. The dividend was raised by 6% to 54.75c, to yield 1.7%.

For the year ahead, Experian anticipates another year of growth due to the breadth and the resilience of its portfolio, and significant structural growth opportunities. Despite the uncertain economic climate, the group expects to deliver organic revenue growth in the range of 4% to 6% and modest margin accretion, all at constant exchange rates and on an ongoing basis.