Data analytics, publishing and events business RELX (REL) surrenders earlier gains to trade 2% lower at £14.26 despite a very solid set of 2017 results.

These reveal profit up 6%, revenue up 4%, in line with the recent trend, and guidance for more of the same in 2018.

Nevertheless, today’s losses extend a painful losing run for the share price which is now down more than 18% year-to-date. Several factors lie behind this weakness.

First, a reversal in the fortunes of the dollar has not helped as a previously strong US currency provided a boost to earnings.

Second, a rumbling dispute over pricing of scientific journals with German universities raises some questions over the Elsevier publishing division.

Finally, a recent build in government bond yields have taken as a negative for companies like RELX which have been classified as ‘bond proxies’. These perceived safe and stable sources of income, which often traded on high valuations, are now under pressure as the yield from actual bonds increases.

ANALYSTS ARE BULLISH

However, many analysts reckon the sell-off in RELX is overdone and represents a buying opportunity. Liberum’s Ian Whittaker says: ‘RELX shares have been the worst performer of the major European media names year to date and we view this as unwarranted given the quality of the assets and the solidity of the company. We therefore see the weakness as a buying opportunity.’

Whittaker therefore reiterates his ‘buy’ recommendation and £17.50 price target. Investec Steve Liechti also stays at ‘buy’ with a more bullish price target of £19 and sees the valuation as ‘cheap for a high quality data business’.

We looked at the RELX business model in detail in this recent article.


Issue Date: 15 Feb 2018