In an era defined by data-driven decision-making and technological disruption, Relx PLC (RELX, Financial) (LSE:REL, Financial) stands out as a global provider of information-based analytics and decision tools for professional and enterprise customers. With a presence in over 180 countries and a workforce of 33,000 individuals, the company operates across diverse markets, bringing valuable insights to industries worldwide.
This discussion explores Relx's unique positioning, its strategic embrace of data for artificial intelligence and its potential for sustained growth in an increasingly AI-centric landscape.
Distinctive data advantage
Relx's competitive edge lies in its exceptional data quality and domain expertise. As an analytics specialist, the company has honed its ability to extract actionable insights from vast reservoirs of high-quality data. This core competency positions it ahead of peers seeking to capitalize on AI's potential.
Unlike companies facing inflated valuations amidst AI euphoria, Relx's shares have remained relatively immune to market fervor, with a reasonable forward price-earnings ratio of 23 and a value rank of 5 out of 10.
AI as a catalyst for growth
The rise of AI presents a transformative opportunity for Relx to amplify its data analysis capabilities. For over a decade, the company has already been utilizing AI techniques such as machine learning and natural language processing. However, the advent of generative AI, epitomized by its products like Lexis+ AI, signifies a new frontier.
By leveraging generative AI, Relx can create innovative solutions like its enhanced legal data tool, showcasing the potential to streamline complex processes across various sectors.
Quality data empowering AI solutions
What sets Relx apart in the AI realm is its repository of high-quality data. This advantage positions the company to offer unique value-added AI solutions to its clients. Notably, the risk division's data, integral to managing threats like fraud and cyberattacks, is proprietary, unique and highly valuable to its customers.
This intricate data landscape poses significant barriers to entry for data and AI competitors, giving Relx a strong moat.
Technological adaptability and resilience
Relx's impressive track record of navigating technological shifts augments its prospects for AI-driven growth. The company's evolution from publishing to data analytics, and subsequently from print to digital publishing, showcases its resilience and capacity to seize emerging opportunities.
Over the years, Relx has undergone a substantial transformation, culminating in an impressive shift from generating a mere 22% of sales from digital products in 2000 to a remarkable 83% in the last year.
Financial performance and growth trajectory
Recent financial performance underscores Relx's growth trajectory. The company reported an 8% increase in revenue and a remarkable 16% rise in adjusted operating profit in the first half of 2023. This growth is accentuated by an adjusted operating margin of 33%, indicative of the premium customers place on Relx's top-tier data.
The resurgence of its exhibitions business further attests to its adaptability and ability to rebound from challenges.
Strategic investment in AI
Embracing AI comes with substantial investment, and Relx's commitment is evident in its annual technology expenditure of approximately $1.6 billion. Despite the costs, management's astute approach aims to maintain cost increases below revenue growth, driving continued margin expansion.
Coupled with its emphasis on higher-growth analytics and decision tools products, this strategy positions the company for sustained growth.
Guru holding
Relx's U.K.-listed shares account for the third-largest holding in European Opportunities Trust PLC's (LSE:EOT, Financial) portfolio, occupying 8.42% of the portfolio as of July 31.
Alexander Darwall, chief investment officer at Devon Equity Management and manager of the European Opportunities Trust, said in his July investor newsletter:
“Relx has split opinion as to how it will be affected by AI. The bounce in the shares in June came as investors, prompted by the company, came to the view that Relx will be a beneficiary of AI. Controlling the data and with profound ‘domain knowledge,’ Relx is a likely winner from what is likely to become a commoditised tool, like many others.”
Good outperformance potential
Darwall is viewed as a growth manager and has a proclivity for technology-related or enabled companies. This is consistent with GuruFocus data. The company has a GF Score of 81 out of 100, indicating good outperformance potential.
The score is composed of the following ratings: 8 out of 10 for profitability (demonstrating Relx’s strong market position for its products), a growth rank of 6 as revenue and earnings have been in line with its industry over the previous three years, a momentum rank of 9 that reflects the stock market’s growing appreciation, a value rank of 5, which is in line with the GF Value rating of fairly valued, and a financial strength rank of 4.
However, the Piotroski F-Score of 7 out of 9 and Altman Z-Score of 3.33 are robust and give me comfort.
Conclusion
In an era marked by transformative AI advancements and data-driven insights, Relx emerges as a compelling investment opportunity. Its mastery of high-quality data, technological adaptability and strategic foray into AI-enabled solutions position the company to outpace competitors and navigate the complexities of an evolving market.
As AI gains momentum and reshapes industries, Relx stands poised to harness this trend, generating value for shareholders while navigating the turbulent waters of an AI-fueled investment landscape. The convergence of data excellence and technological acumen underscores its potential for sustained growth, making it a very interesting stock.
