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Until recently I did not know that FTSE 100 information and analytics firm RELX (LSE: REL) owned LexisNexis. For those who have worked at the sharp end of financial markets, the latter is a powerhouse in risk management.
I also did not know that RELX has its origins in information giant Reed Elsevier. Putting the two together, of course, explained the peculiar company name to me – d’oh!
The RELX group now has four businesses – risk, scientific, technical and medical (STM), legal, and exhibitions.
All appear to be growing strongly as the firm continues its transition into a high-margin, artificial intelligence (AI)-led business. So well, in fact, that my stock screener alerted me to the business again after its Q1 trading update.
The latest guidance
Although no specific numbers were given, the 24 April update reiterated that it sees strong growth this year in revenue, profit, and earnings per share.
It highlighted that its risk business continues to be driven by financial crime compliance and digital fraud and identity solutions. Its ‘Lexis+AI’ generative AI solution is successfully being rolled out by its legal division across the US and international markets. Renewal rates and new sales remain strong across both operations, according to the firm.
In 2024, revenue in the risk division rose 8% year on year to £3.245bn, and profit increased 9% to £1.228bn. Over the same period, its legal division saw revenue jump 7% to £1.899bn, with profit up 9% to £412m.
Its STM business saw a more modest 4% rise in revenue last year to £3.051bn, with profit increasing 5% to £1.172bn. While 2024 revenue from its exhibitions operations jumped 11% in the year, and profit soared 31% to £3.199bn.
I think key risks here to future earnings are recent US tariffs and more protectionst EU regulations relating to AI infrastructure and rare earth materials.
However, consensus analysts’ forecasts are that RELX’s earnings will increase by 8.7% a year to the end of 2027.
Are the shares undervalued?
I have noticed in recent months that several UK technology stocks tend to look overvalued to me. I think this is because there are so few of them compared to such stocks in the major US indexes, for example.
To find out if this is true for RELX, I started by comparing its key valuation measures with its competitors.
On the price-to-sales ratio at 7.9 compared to its competitors’ 14.6 average. So it looks undervalued on this measure. These firms comprise Wolters Kluwer at 6.1, Thomson Reuters at 11.5, Verisk Analytics at 14.4, and Fair Isaac at 26.3.
It also looks undervalued on the price-to-earnings ratio at 38.7 against its peers’ average of 49.8.
I ran a discounted cash flow analysis to put these numbers into share price terms. This shows RELX shares are 14% undervalued at their current price of £41.10.
Therefore, their fair value is £47.79, although market vagaries could push them lower or higher.
Will I buy the shares?
If I were not focused on high-yielding stocks, I would buy RELX shares (it only yields 1.5%) and think it is worth considering.
It is a rare technology stock in the FTSE 100 and looks set for strong earnings growth. This should power the share price higher I think.
