RELX PLC

Moat: 4/5

Understandability: 3/5

Balance Sheet Health: 4/5

REXL PLC is a global provider of information and analytics solutions, serving professional customers across various industries with a focus on data-driven insights and workflow tools.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Moat Assessment: 4 / 5

RELX demonstrates a strong competitive advantage, which I rate as a 4 out of 5, primarily rooted in its unique content and scale. Here’s a breakdown:

  • Intangible Assets: RELX’s primary moat is its intangible assets, in particular its proprietary data and analytics. This data, accumulated over decades, creates a significant barrier to entry. Competitors would need to replicate not only the quantity of data, but its quality and comprehensive nature, a task that would take enormous time and resources, with no guarantee of success.
  • Switching Costs: The company’s products are heavily integrated into customers’ operations and workflows. This makes switching to competitors’ products difficult and costly for customers, creating a high degree of lock-in and improving customer retention rates.
  • Limited Competitive Rivalry: The industries in which RELX operates are often specialized, with a few large players dominating. This limits the scope for new entrants to disrupt the status quo, since these players are heavily protected by barriers to entry.
  • Global Presence & Scale: RELX boasts a global reach with a presence in most major markets. This wide geographical scope enables it to serve customers in local areas, where it might be difficult for competitors to establish a footprint. Further, size has allowed RELX to invest heavily in technology and product development.

However, a few factors do prevent the moat from being a 5 out of 5:

  • Industry Disruption: The company has always been a media leader, first in print, then online databases, and has the expertise for data transition. However, new AI-powered platforms might disrupt the company’s information gathering abilities as these AI tools might be able to parse the same data, which, ultimately, could make this moat narrower.
  • Competition from Specialist Competitors: Despite its massive scale, the company still faces niche competition in each of the industries it operates in.

Risks to the Moat and Business Resilience

Despite a strong competitive position, several potential risks could erode RELX’s moat or negatively impact its business. These risks include:

  • Technological Disruption: As a technology company, RELX is susceptible to disruption by newer and faster technologies. In particular, the company may be slow to adapt to generative AI and how it can help extract insights from data.
  • Data Security and Privacy: With its vast data assets, RELX is subject to privacy breaches and cybersecurity threats, which could damage its reputation or cause a major data loss event. The firm needs to ensure that it has enough resources and expertise to maintain the privacy and security of data for itself and its customers.
  • Regulation and Legal: The company operates globally and has been subject to increased scrutiny by various governments, with a particular focus on data privacy and control. Legal and regulatory issues could have serious consequences for the profitability of the business.
  • Economic Downturns: Despite its resilient performance across economic cycles, the business is still somewhat sensitive to macroeconomic factors. If economies go into recessions or downturns, there may be pressure on RELX’s revenue, although I do not see this as a major threat.
  • Dependency on Key Personnel: The CEO and other senior executives seem to be driving the direction of the company, and if one or more of those key executives were to leave, it could have a small negative impact on the business.
  • Talent Acquisition: As a company that values high-level skill and intellect, RELX must remain attractive to professionals. If the company is unable to find top-level talent to bring innovation and execution, the business can suffer.

Business Description and Competitive Landscape

RELX’s business is organized into three core segments:

  • Risk: This segment provides data and analytics solutions to assist clients in assessing and mitigating risks across a range of industries, including insurance, financial services, and government.
  • Scientific, Technical & Medical: This segment focuses on scientific, technical, and medical information and analytics, including research tools, databases, and workflow solutions for researchers and professionals in healthcare and scientific settings.

  • Legal: This segment offers legal information, analytics, and workflow tools to legal professionals, including research materials, case law, and litigation-support solutions.

  • Geographical Revenue: A significant portion of RELX’s revenue is derived from North America (around 50%), followed by Europe, and then Asia and other regions. The company’s client base is truly global.
  • Competition:
    • Risk: RELX faces competition from companies offering similar risk-management tools. For example, in the legal sector, the company faces competition from other specialized vendors such as Thomson Reuters.
    • Scientific, Technical & Medical: Competitors include academic publishers (such as Elsevier) and research firms (such as IQVIA). These competitors have carved out their own profitable niches in specific areas and are well established in the market.
    • Legal: Legal publishing and information businesses are dominated by a few large players, including Thomson Reuters and LexisNexis, and these remain the most significant competitors for RELX.

However, RELX’s breadth and scope allow it to provide solutions spanning many industries. This diverse base creates a level of stability and strength and protects it from external disruptions.

Financial Analysis

RELX’s financials reflect a stable, highly profitable business with recurring revenue. Below is a breakdown of key financial metrics from recent reports:

  • Revenue: Revenue has shown good growth and is mostly subscription based. This high recurring revenue base gives better visibility into long-term performance and makes revenues more resilient. Revenues from the three segments described above are roughly even in terms of split.

  • Earnings and Profitability: RELX maintains strong gross margins and operating margins. Net income has consistently improved over the past years.

    • The operating profit margin grew over 50% in the last couple of years, which shows the management’s cost control and pricing power.
    • Tax rates may go up to pre-2021 levels, from 14.5% in 2022, but this is an industry trend and should not hurt the long-term outlook.
  • Return on Capital: The company has strong returns on invested capital (ROIC) of over 10%, which proves its ability to generate value from investments. Management has a focus on sustainable long-term profitability and is willing to forgo short-term profits for the long term.
  • Capital structure RELX’s debt-to-equity ratio is a little over 1, which means the company is highly leveraged. This puts a greater emphasis on management’s performance with operating efficiency to ensure that debt can be repaid with minimal risk. However, they have been paying down debt over the past couple of years, which signals the strength of the business. The cash position of the company has improved significantly in recent years.

Recent Developments and Challenges

RELX, like all large businesses, faces challenges including:
  • AI Disruption: As stated earlier, with the emergence of AI, the firm could see disruptions in their business model if it does not capitalize on the new technological landscape and find new means to create value through AI.
  • Data Privacy: New and evolving regulations surrounding data privacy put pressure on businesses such as RELX.
  • Inflation & Energy Costs: As for most companies, inflation and energy costs are expected to increase, which will put upward pressure on the operational costs of the company, with uncertain impact on profits.

Understandability: 3 / 5

RELX’s business model has some complexities, as it operates across three different segments that have different industry dynamics and customer base, which makes the company’s financial results hard to predict. Further, the nuances of the financial metrics and business specifics can make understanding some of its business aspects complex. Hence, it gets an understandability score of 3.

Balance Sheet Health: 4 / 5

RELX has a solid balance sheet with good liquidity and a history of reducing debt, but not in a great position. The company is not cash rich, and has a debt-to-equity ratio of over 1. But as long as its performance does not diminish, it will be able to pay off its debt. Because of that, and the lack of major issues in the balance sheet, I have given it a 4.