Investment portfolios benefit from adding companies with long records of profitable growth and rising dividends; if these firms possess databases of proprietary information that can benefit from the application of artificial intelligence (AI), so much the better. Enter RELX (LSE: REL), a FTSE 100 company worth £66 billion. It supplies global customers in a diverse set of professions and businesses with information-based analytics and decision-making tools. It is the largest player in an industry where scale is important and its growing use of analytics and decision-making tools has increased its organic growth rate.
RELX has four divisions: risk (34.2% of revenue), scientific, technical and medical (ST&M, 33.4%), legal (20.2%) and exhibitions (12.2%). Relx serves customers in over 180 countries. The risk segment uses advanced technology and algorithms to analyse public and industry-specific content to predict risks, detect fraud and enhance efficiency. Risk’s customers include 84% of the Fortune 500 companies, nine of the world’s top 10 banks and 21 of the world’s top 25 insurance companies. ST&M includes 2,900 journals, ScienceDirect (the world’s largest platform of peer-reviewed scientific and medical research with over 21 million pieces of content) and SciVal – a web-based analytics tool providing insights into the research performance of over 24,000 academic, industry and government research institutes.
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Should you invest in Relx?
RELX was founded in 1903 and has undergone a complete transformation over the last 24 years. In 2000, 64% of revenue came from printed products and 22% from electronic ones. Now print comprises 5% of sales and electronic offerings 83%. In 2023 the other 12% was accounted for by face-to-face revenue (exhibitions). Relx has also moved on from its mainly European roots (the merger of Reed and Elsevier) by growing its North American revenue to 59% of the total. Europe comprises 21% and other countries 20%. The majority of overall revenue now comes from subscriptions or long-term contracts, which greatly reduces volatility. The company has a wide “moat” (an enduring competitive advantage) based on its intangible assets (such as proprietary databases) and switching costs: it would be expensive for clients to switch to a rival. The moat, coupled with the recurring revenue base, reduces cyclicality and gives a high degree of certainty and predictability to future growth.
RELX’s revenue and profits dipped during Covid, but both have risen steadily in the last few years. Revenue is up from £7.1 billion in 2020 to £9.2 billion in 2023, with adjusted operating profit jumping from £2.08 billion to £3.03 billion. The dividend was increased from 45.7p to 58.8p over the same period. CEO Erik Engstrom has led the company since 2009 and it has grown mainly organically, with small bolt-on acquisitions. There has been an upward trend in both operating margin and return on invested capital over the last few years.
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