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Elevator Pitch
RELX PLC (NYSE:RELX) [REL:LN] is awarded a Hold investment rating.
My previous article published on December 1, 2023 drew attention to two of the company’s businesses, or more specifically, its Risk and Exhibitions business units. For the current write-up, I analyze RELX’s most recent set of results, and assess its outlook relating to revenue & operating earnings growth and capital return.
There were no surprises with RELX’s latest 2H 2023 financial performance, which explains why the company’s shares hardly budged after its results release. Looking forward, RELX’s estimated FY 2024 shareholder yield of 3.5% is pretty good, but the company is likely to witness growth deceleration for the current year. Following an evaluation of RELX’s results and prospects, I choose to retain my Hold rating for the stock.
2H 2023 Performance Met The Market’s Expectations
On February 15 before the market opened, RELX announced the company’s financial results for the second half of last year. RELX’s shares were flat on the day of the company’s latest results announcement, which indicated that its actual financial performance didn’t surprise the market.
In its 6-K filing issued on February 15, 2024, RELX disclosed that its top line and normalized operating income grew by +1.7% YoY and +6.9% to YoY to £4,662 million and £1,544 million, respectively in 2H 2023. RELX credited its reasonably good operating profit growth to its “strategy of driving continuous process innovation to manage cost growth below revenue growth” and the “recovery in face-to-face activity” in the company’s 6-K filing.
RELX’s normalized operating profit margin improved by +160 basis points YoY from 31.5% in 2H 2022 to 33.1% for 2H 2023, which serves as a validation of the company’s success in optimizing expenses via “process innovation.” Also, its Exhibitions Segment’s operating income increased by +41.7% YoY to £146 million in the second half of the prior year as a result of the continued recovery from the COVID-19 pandemic, which had previously led exhibitions to be either cancelled or postponed.
Unfortunately, the company’s latest results were similar to what the analysts had anticipated. RELX’s actual 2H 2023 sales were marginally or -0.6% lower than the sell side’s consensus revenue projection of £4,689 million (source: S&P Capital IQ). On the other hand, the company’s normalized operating profit for the latter half of 2023 was +1.4% better than the market’s consensus non-GAAP operating income estimate of £1,522 million as per S&P Capital IQ data.
Consider Slower Growth And Shareholder Capital Return
RELX’s prospects are mixed, if one looks beyond the company’s in-line 2H 2023 results.
On one hand, the market sees RELX reporting a modest pace of top line and operating earnings growth in 2024, which I think is reasonable. In other words, my view is that RELX’s 2024 results won’t throw up any major positive surprises.
As per consensus estimates sourced from S&P Capital IQ, the sell side projects that RELX’s revenue growth in pound sterling terms will decelerate from +7.1% last year to +5.7% this year. The analysts also forecast that the company’s operating income expansion will slow from +12.9% to +6.8% over the same time period. As a comparison, RELX’s historical top line and operating profit CAGRs for the FY 2015-2019 time frame prior to the pandemic were +6.4% and +7.5%, respectively. This implies that the company’s expected growth rates for FY 2024 are slightly inferior to what it has achieved in the past.
At its 2H 2023 earnings briefing, RELX stressed that the “shift in our business mix towards higher growth analytics and decision tools” will be the most critical growth driver for the company in the intermediate to long term. But it is important to note that it will take time for RELX’s “business mix” optimization efforts to be reflected in its actual financial results. RELX explained at its latest results briefing that the majority of its businesses enter into multi-year agreements with their respective clients, so the upselling of new offerings will typically take place upon the expiry of existing contracts. This explains why RELX’s financial outlook for FY 2024 doesn’t reflect a significant improvement as compared to historical growth trends.
On the other hand, RELX’s expected FY 2024 shareholder yield is decent.
The company’s capital allocated to share repurchases grew by +60% from £500 million in 2022 to £800 million in 2023. Looking ahead, RELX has guided for share buybacks amounting to £1 billion for the current year, which translates into a share buyback yield of 1.6%.
The risk of RELX allocating a larger-than-expected proportion of capital to acquisitions at the expense of share repurchases is low, considering the company’s recent management comments. RELX noted at its most recent earnings call that “there’s nothing different in the (M&A) pipeline and range of opportunities that we see today than normal.”
RELX’s consensus FY 2024 dividend yield is 1.9% as per S&P Capital IQ data. RELX’s dividend distributions for the current year are supported by the company’s reiteration of its 50% dividend payout policy, as indicated in its earnings presentation slides.
RELX could potentially offer a pretty decent shareholder yield (sum of dividends and buybacks divided by market capitalization) of 3.5% for fiscal 2024.
In a nutshell, the 3.5% shareholder yield for FY 2024 could provide support for the company’s share price, even though RELX is expected to register a slower pace of revenue and operating profit growth this year.
Closing Thoughts
I stick to my existing Hold rating for RELX. The company’s 2H 2023 results were in line with the consensus forecasts, and I don’t expect positive surprises with RELX’s FY 2024 performance.
The market appears to have already priced in RELX’s “business mix” optimization to a large degree, even though this is still a work-in-progress, as I highlighted in the previous section. RELX’s current consensus next twelve months’ normalized P/E of 27.0 times (source: S&P Capital IQ) is just slightly below its 10-year peak P/E ratio of 27.9 times.
RELX’s 3.5% shareholder yield is sufficiently decent to warrant a Hold rating, but it is hard to justify a Buy rating considering its 2024 financial outlook and its current valuations.
