Reliability redux: key points from the RELX Q3 trading update

1.??????Organic revenue growth remains strong for the group. YTD, it is +9%. Note, at the 1H results, RELX didn’t give an actual underlying growth number because of the distorting impact of exhibitions, which had been impacted by the pandemic. However, looking at the divisional numbers, Risk and Scientific Publishing look to have continued the same trends as in 1H, with 1H and 9m organic growth the same at +7% and +4% respectively but the Legal division has accelerated (+4% growth for 1H, +5% for 9m suggesting around 7-8% for Q3) – although it is hard to tell, the RELX results are always surrounded by the questions of whether the numbers have been rounded up and down when it comes to organic revenue growth.

2.??????RELX did say in the statement that it had updated its guidance but the wording on the Q3 trading update is the same as it was at the 1H results, with results at all levels expected to be above historical trends. So, there should not be significant changes to consensus estimates on an underlying basis but analysts will be updating for the strength of the dollar (RELX is a beneficiary from dollar strength given its heavy revenue exposure to the USD and / or contracts are priced in $).

3.??????Looking at the units. First, at Risk (which provides information to help price risks in things such as motor insurance and mortgages), the guidance is the same as 1H (“We expect strong underlying revenue growth, in line with historical trends, with underlying adjusted operating profit growth broadly matching underlying revenue growth”). There is not much detail but it’s interesting that the language around Insurance suggests continued improvement since 1H given the concerns over the US consumer (RELX is seen in many ways as a recession-resilient stock and these businesses tended to do well in recessions).

4.??????Secondly, STM (Scientific, Technical and Medical). Underlying revenue growth of +4% has continued the pattern seen over the past several years of underlying growth slowly edging up in STM as newer products and information tools take hold. One thing is clear that Open Access has not had an impact on the business despite the noise raised on the subject. This business should continue to grow steadily and RELX has a very strong position in the market. As with Risk, there is no change to the guidance.

5.??????Thirdly, Legal. As noted above, there has been some acceleration in revenue growth in Q3 with RELX attributing that to legal analytics. Here there is a change in wording – for underlying revenue growth, the words used have changed from “We expect underlying revenue growth to remain above historical trends” to “We expect underlying revenue growth to remain well above historical trends” suggesting greater momentum in the business both short and medium-term. Implicitly, there is also an upgrade to operating profit momentum given, while the language saying it will exceed revenue growth remains the same, the fact organic revenue growth is now expected to be faster suggests more profit growth.

6.??????Finally, Exhibitions, which are around 10% of the business. The exhibitions unit generally has not fully rebounded from the effects of the pandemic, and the continued restrictions in China continue to provide some uncertainty. Unlike 1H, RELX did give a underlying revenue growth number for the business (+85% for 9m). As noted in the statement, coming out of the pandemic effects, the business should have a structurally higher margin given the cost cutting. There is no change to the guidance here but there is a question whether RELX will keep the business long-term. One interesting point – RELX did not disclose where they are against pre-pandemic levels.

7.??????Overall, then, RELX continues to demonstrate it is a strong, healthy resilient business with a range of high-quality assets and strong market positions. As noted above, it is seen as defensive in nature.

As usual, this is not investment advice.?