RELX - RELX: Eyes On Risk And Exhibitions Businesses

2023-12-01 14:28:27 ET

Summary

• The Risk business division has a favorable revenue mix, while its Insurance sub-segment has good growth prospects.
• There is a risk that the Exhibitions division's 2024 performance doesn't meet investors' expectations, and it is a disappointment that a divestment of the Exhibitions business seems unlikely for now.
• A Hold rating for RELX is maintained following an analysis of RELX's Exhibitions and Risk business divisions.

Elevator Pitch

I still rate RELX PLC ( RELX ) (REL:LN) stock as a Hold. My earlier update for RELX written on September 22, 2023 was focused on the stock's valuations and the company's risk factors.

RELX's Exhibitions and Risk businesses have performed very well this year, achieving top-line expansion rates of +32% YoY and +8% YoY, respectively for 9M 2023 as indicated in its third-quarter trading update press release . In comparison, the company's Scientific, Technical & Medical, and Legal divisions saw relatively more modest revenue increases of +4% and +6%, respectively on a YoY basis during the same time period. As such, I have decided to focus my attention on RELX's Risk and Exhibitions business divisions in this latest article.

On one hand, I am positive on the Risk division's optimal sales mix and the Insurance sub-segment's growth outlook. On the other hand, I am concerned that the Exhibitions business' 2024 results might fall short of expectations, and I am also disappointed that RELX isn't considering a sale of its Exhibitions division for now. The factors outlined above support a Hold rating for RELX.

Positive View Of Risk Division And Insurance Sub-Segment

In its Q3 2023 trading update release, RELX emphasized that "insurance (sub-segment) growth" driven by "continued new sales momentum and positive market factors" was one of the key factors that led to a +8% revenue expansion for its Risk division in the latest quarter.

RELX doesn't disclose actual revenue numbers for the individual business divisions in the company's Q3 2023 trading update. Based on 1H 2023 numbers , the company derived 35% of its revenue from the Risk business, and the insurance sub-segment accounted for around 40% of the Risk division's sales.

The optimal sales mix for RELX's Risk division is a key reason for the business' reasonably strong performance (9M revenue growth of +8% YoY) in 2023 year-to-date.

As indicated in the company's November 2023 Risk Investor Seminar presentation slides , approximately 39% of the Risk business' revenue is generated from recurring subscriptions. RELX also shared at the Risk Investor Seminar webcast last month that "the majority of that (the remaining 61% of revenue for RELX's Risk division) is under long-term contracts" and disclosed that less than 5% comes from one-time transactions.

Separately, RELX mentioned in the Risk Investor Seminar presentation that 99% of the Risk division's business operations are done electronically (as opposed to print), so there is no need to be concerned about digital disruption challenges for this business.

Moving on to the Insurance sub-segment, RELX's Insurance business is a leading player operating in a market with lots of growth opportunities.

RELX's Insurance Business Is A Market Leader In The Areas That It Operates In

There are different areas of growth for RELX's Insurance sub-segment.

One area is claims. RELX noted in its Risk Investor Seminar presentation that underwriting losses for the US property insurance industry were as high as $27 billion last year. The company's real estate insurance product offering known as "Total Property Understanding or TPU" can help to improve property insurers' earnings by reducing claims losses with better risk assessment.

Another area is user acquisition. At its November 2023 Risk Investor Seminar webcast, RELX highlighted that insurers allocate around $5 billion to consumer outreach each year, and its insurance business' products can assist insurance companies in controlling their selling expenses.

Outlook And Potential Corporate Actions For Exhibitions Division In The Spotlight

The Exhibitions division delivered a very impressive +32% top-line increase for the first nine months of 2023, as headwinds relating to the COVID-19 pandemic continued to ease. At the company's Q3 2023 trading update call (event transcript sourced from S&P Capital IQ ), RELX revealed that "Average like-for-like event revenues across the portfolio continue to run ahead of pre-pandemic levels."

In my opinion, the 2024 financial performance for RELX's Exhibitions business could potentially disappoint the market for a few reasons.

Firstly, there will be a high base in 2023 considering the Exhibitions division's 9M 2023 results, which makes YoY comparisons for 2024 challenging.

Secondly, it might not be easy for RELX to impose direct price hikes to offset inflationary cost pressures. RELX noted at the third quarter trading update call that it will focus more on offering "more value to customers and get higher spend", as opposed to "charging a higher price or a different price for the same thing that we provided last year."

Thirdly, China contributes a "single-digit percentage" of the Exhibitions division's top line as revealed in RELX's Q3 trading update call. This implies that economic uncertainty and geopolitical risks associated with the Chinese market might be a source of negative surprises for the company's Exhibitions business.

Also, it is disappointing that RELX doesn't seem to have interest in divesting its Exhibitions business anytime soon. At its third-quarter trading update call, RELX emphasized that "there continues to be a big opportunity in exhibitions" in response to an analyst's question on selling this business.

Although RELX's Exhibitions division has reported a good set of results for 9M 2023, there are limited synergies between the company's Exhibitions business and its other Scientific, Technical & Medical, Risk, and Legal divisions in my view. Therefore, I would have preferred that RELX monetize its Exhibitions business division and reinvest the sales proceeds in other divisions such as Risk.

Concluding Thoughts

I continue to have a Neutral view of RELX. I have a favorable opinion of the growth prospects for RELX's Insurance business, but I am not as optimistic about the Exhibitions business' short-term outlook.

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