Experian, the credit information company, has seen signs of improvement for its services in the US, but warns the UK is still weak.
The company provides credit checks for banks but its business has been affected by finanical institutions cutting back on lending in the wake of the credit crunch, not to mention borrowers deciding that they do not, after all, need a loan to buy something.
Even so, its first half revenues have grown by 1% and it was relatively upbeat about the outlook. Chief executive Don Robert said:
As we look forward, the external environment varies considerably across our major markets. North America is showing signs of stability, the UK remains weak, while market conditions in Brazil are improving. We are not relying on market recovery and continue to invest in numerous initiatives to drive growth. For the year as a whole we remain on track to at least maintain margins, grow profits at constant currency and deliver strong cash flow conversion.
Its shares have added 7p to 536.5p, albeit slightly underperforming what is at the moment a booming stock market. Analysts at Charles Stanley issued a buy note on the business and said:
As expected, Experian has reported slow first half in revenue growth though Experian's own self-help measures continue to flow through in the 2010 results. In 2009, Experian delivered $80m of cost savings and it expects to achieve total annualised savings from fiscal 2010 onwards of $150m.
Although banking markets are more stable, activity levels have not yet returned to normal. Tight lending and weak economic conditions in the US and UK resulted in a 5% decline in US Credit Services revenue and a 7% decline in the UK Credit Services revenue in the first half.
UK Credit Services was impacted by ongoing weakness in credit origination and consolidation such as the merger of HBOS and Lloyds which resulted in slower growth and some very small margin pressure for Experian. The second half should show an improvement but largely on the back of weak comparatives. It would be comforting to see an improvement in organic revenue growth. For Experian, unemployment trends are an important leading indicator as loan delinquencies peak about four months after unemployment peaks.
We expect strong cash generation to continue in the second half of 2010. Experian shares trade on a March 2010 PE of 13.4 times and the dividend yield is about 2.4%. Our recommendation is buy.
