The reaction to today's 2014 results and corporate update from Anglo-Dutch professional information specialist Reed Elsevier (REL) is a useful reminder of what happens when a highly-rated company fails to knock the lights out.
The shares are down 5.6% to £11.20 as it posts profits in-line with consensus, the market also apparently underwhelmed by plans to simplify its structure and return £500 million to investors through a share buyback. Reed – which operates in the science and medical, risk, legal and exhibitions markets – says from July its Dutch and UK parents will be combined into a single group entity to be named RELX Group.
All share listings – in London, Amsterdam and New York – are to be moved to an equal ratio of 1:1 to 'increase transparency'. The corporate re-haul is expected to be cost and profit neutral. The headlines from the results themselves were a 3% increase in full-year revenue to £5.8 billion and a 14% drop in net profit to £995 million. The decline is partly explained by a one-off bumper tax credit booked in 2013.
As Investec suggests these numbers are 'only OK' and the broker puts its 'buy' recommendation and £12.00 price target under review. Analyst Steve Liechti comments: 'We see no big new catalysts for a stock now on a big rating unless investors get excited by the new structure.'
Liberum is more bullish, reiterating its 'buy' call and noting that the 'announced simplification of the corporate structure announced today should be positive for the investment case'.