Relx outperforms: should you buy this FTSE 100 stock?

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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.

Legal includes the well-known LexisNexis database with more than 138 billion legal, court and patent documents, to which over 2.2 million new documents are added daily. It also includes PatentSight, which rates the innovative strength of 152 million patents from 100 countries. Exhibitions organised 286 face-to-face exhibitions in 2023 with over six million visitors and serves 42 industry sectors in 25 countries. RELX already has 10 products on the market using generative AI to help professional customers. These include Lexis+AI for legal professionals, ClinicalKey AI for clinicians and AI Assist for HR professionals. Lexis+AI for lawyers, for example, features conversational search, intelligent legal drafting, insightful summarising and analysis of documents. All these activities are supported by state-of-the-art encryption and privacy technology to keep sensitive data secure.

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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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Highly qualified (BSc PhD CPhys FInstP MIoD) expert in R&D management, business improvement and investment analysis, Dr Mike Tubbs worked for decades on the 'inside' of corporate giants such as Xerox, Battelle and Lucas. Working in the research and development departments, he learnt what became the key to his investing; knowledge which gave him a unique perspective on the stock markets.

Dr Tubbs went on to create the R&D Scorecard which was presented annually to the Department of Trade & Industry and the European Commission. It was a guide for European businesses on how to improve prospects using correctly applied research and development.

He has been a contributor to MoneyWeek for many years, with a particular focus on R&D-driven growth companies.