Ex­pe­rian is well-placed to ben­e­fit from Equifax’s woes, but its shares look ex­pen­sive

Two of the credit checker’s di­vi­sions are de­liv­er­ing but con­sumer-ser­vices ques­tions re­main, says James Ash­ton

The Sunday Telegraph - Money & Business - - Business -

IF DATA are the new oil, does that make Ex­pe­rian the new BP? The £15bn credit checker has been a FTSE 100 stal­wart since it gained its in­de­pen­dence from re­tailer Ar­gos a lit­tle over a decade ago, but the div­i­dend yield of 2pc is a long way short of the pay­out gusher in­vestors rely on from the en­ergy gi­ant.

The vogu­ish ex­pres­sion refers less to share­holder re­turns and more to the growth in a valu­able re­source that will power the econ­omy long af­ter BP’S last well has run dry.

How much eas­ier it is to profit by drilling into reams of in­for­ma­tion in­stead of the bow­els of the earth, an un­sta­ble oc­cu­pa­tion that can lead to dis­as­ters such as the Deep­wa­ter Hori­zon oil spill in the Gulf of Mex­ico. But data is not with­out risk, as the nu­mer­ous or­gan­i­sa­tions that have suf­fered cy­ber at­tacks this year show. Ex­pe­rian has four di­vi­sions. Credit ser­vices ac­counts for half of the busi­ness and it col­lects and analy­ses more than one bil­lion credit his­to­ries to in­form lenders and credit card firms if new cus­tomers are a safe bet. De­ci­sion an­a­lyt­ics uses data to min­imise fraud risk and spot which cus­tomers have grown un­happy with the ser­vice they are re­ceiv­ing. Mar­ket­ing ser­vices en­ables clients to plan their mar­ket­ing cam­paigns and track re­sponses.

The fourth di­vi­sion, con­sumer ser­vices, lets in­di­vid­u­als mon­i­tor their credit score. It has been the lag­gard as Ex­pe­rian at­tempts to cre­ate a gi­ant, free mem­ber­ship base from which it can gen­er­ate new rev­enues. So far it has 12m mem­bers signed up in the UK and US, and high hopes for Iden­tity works, a sub­scrip­tion-based iden­tity mon­i­tor­ing ser­vice, and Lend­ing works, a com­par­i­son ser­vice for loans and credit cards. The last quar­ter il­lus­trates the chal­lenge. Group un­der­ly­ing sales growth was 4pc, with de­ci­sion an­a­lyt­ics and mar­ket­ing ser­vices strongly ahead.

How­ever, con­sumer ser­vices slid 8pc with par­tic­u­lar weak­ness in the UK. An­a­lysts at Goldman Sachs re­main bullish on the di­vi­sion, point­ing out that the new prod­ucts in­tro­duced in the US should gain scale as they are rolled out in the com­ing months.

That may con­trib­ute to a re­turn to growth in the sec­ond half. Watch out for signs of di­vi­sional progress when half-year re­sults are posted on Nov 15. Ex­pe­rian shares have been di­rec­tion­less this year. They cur­rently trade 7pc be­low their May peak, reached around the time of their full-year re­sults an­nounce­ment, but 9pc higher than the trough they hit in the af­ter­math of the Equifax data breach.

Ex­pe­rian’s Amer­i­can ri­val made head­lines for one of the largest-ever data breaches as per­sonal de­tails of 143m Amer­i­cans were com­pro­mised af­ter a cy­ber at­tack. Equifax is not alone.

Ex­pe­rian had its cri­sis early when the de­tails of 15m T-mo­bile cus­tomers leaked out two years ago. This time around, Ex­pe­rian might be able to in­crease mar­ket share at the ex­pense of Equifax, but, all things be­ing equal, data is go­ing to be­come a more ex­pen­sive busi­ness. US politi­cians are train­ing their sights on the in­dus­try. Ex­pe­rian boss Brian Cassin was among sev­eral con­sumer credit check­ing lead­ers that de­clined to ap­pear be­fore a panel of House Democrats late last month.

On this side of the At­lantic, the Euro­pean Union’s Gen­eral Data Pro­tec­tion Reg­u­la­tion (GDPR), which comes into force next May, makes life harder for any com­pany man­ag­ing con­sumer data, with harsher fines promised for those that fail to pro­tect suf­fi­ciently against at­tacks.

Of greater con­cern is the credit out­look. Cen­tral bankers are be­com­ing ex­er­cised about credit bub­bles, with car fi­nance and credit cards ar­eas of worry. Banks are rein­ing in of­fers and ris­ing in­ter­est rates stand to cool mat­ters fur­ther. Ex­pe­rian is re­liant on the vol­ume of ac­tiv­ity. While point­ing out the high bar­ri­ers to en­try in this sec­tor, Mor­gan Stan­ley re­duced its fore­casts for the credit ser­vices di­vi­sion in the UK and US over sum­mer.

Ex­pe­rian has a strong bal­ance sheet, with a $600m share buy-back promised this year on top of $734m re­pur­chased last year. The group has also shown will­ing­ness to tighten its port­fo­lio. Ear­lier this year it sold a ma­jor­ity stake in its low-mar­gin email mar­ket­ing arm in a trans­ac­tion that gave the unit a £320m en­ter­prise value. But trad­ing at close to 20 times next year’s fore­cast earn­ings, Ex­pe­rian shares should be avoided for now. Bet­ter stick­ing with oil in­stead.

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