Barron\'s - 05.08.2019

(Michael S) #1

M6 BARRON’S August 5, 2019


EuropeanTrader


Data Deluge Lifts Experian


ByRupertSteiner


Sharesof Experian ,theinformation-servicescompany,haveoutperformed


theleadingUnitedKingdomstocksthisyear,risingabout33%toarecent25.44


poundssterling($27.25).Thatcompareswitha1.87%fallintheFTSE100,the


benchmark British stock index.


Muchofthestock’sgainreflectsincreaseddemandforthedatathatExpe-


rian (ticker: EXPN.UK) crunches for corporate lenders seeking to mitigate


risk,andconsumersmonitoringtheircreditscores.Moregainsseemlikelyas


Experianwinsnewcorporatecustomersbeyondthefinancial-servicessector,


andextendsitsgeographicalreachtoemergingmarkets,wherecredit-scoring


needs are likely to grow, given a burgeoning middle class.


AlthoughExperiansharesfetchahefty31timesthisyear’sexpectedearn-


ings,PaulSullivan,ananalystatBarclays,isn’tdaunted.“Experianisacompel-


lingmultiyearstructuralgrowthstorythatjustifiesavaluationpremium,”he


wrote in a July note.


Sullivanforecastsa27%increaseby2022inthecompany’searningsbefore


interest,taxes,depreciation,andamortization,from$1.6billionto$2.1billion.


LloydPitchford,Experian’sfinancedirector,told Barron’s thatthecompany


is“increasingthepaceofinnovationandthespeedatwhichwecanbringnew


products to market.”


ExperianwasformedasaunitofGreatUniversalStores,aBritishmail-or-


derbusinessfoundedin1900.GreatUniversalgrewintoaretailingconglomer-


atethatspawnedluxuryfashionbrandBurberryandretailchainArgos.Inthe


1960s,millionsofsmallcustomerswerepayingforgoodsoncreditthroughthe


company’s mail-order business and home-furnishing stores. GUS pioneered


creditscoringinordertodecidewhomtoappointasmail-orderagents—repre-


sentativeswhodeliveredgoodsandcollectedpayments.This


morphedintooneofthebiggestcreditdatabasesintheU.K.


Thecredit-scoringdivisionacquiredU.S.-basedExperian


in 1996, adopting its name. Experian was spun out of Great


Universalin2006andtradesontheLondonStockExchange.


The company has a market value of £22.9 billion, employs 17,200 people, and


inMaypostedapretaxprofitof$957millionfortheyearendedinMarch2019,


up from $950 million the year before on sales of $4.8 billion.


ExperianboastsanEbitdamarginof33.6%,versusanaverage25.4%among


its peer group. The stock returned 22.2% annually, including dividends, over


thepastfiveyears,handilybeatingtheFTSEAllShareindex’s7.12%totalre-


turn. Its shares yield about 1.5%.


Experianestimatesthat themarketforverificationofborrowers’identity


andcreditworthinessis$110billionandrising.“Wecontinuetobelievethatthe


[company]isatthebeginningofelevatedorganicgrowthbasedonrecentin-


vestmentanddiversification,fueledbydataproliferation,digitization,andpro-


cess automation,” Barclays analyst Sullivan wrote in May.


ThegrowthpotentialisevidentinconsensusearningsestimatesforExpe-


rian.Analystsexpectthecompanytonet$1.06centsashareinfiscal2020,and


$1.20 cents in fiscal 2021.


Data collection has come a long way since1826, when British innkeepers,


drapers,hatters,andchandlersreceivedamonthlycircularwithinformation


onpeoplewhohadfailedtopaytheirdebtsfromtheSocietyofGuardiansfor


theProtectionofTradesmenagainstSwindlers,SharpersandotherFraudulent


Persons.Fortunately,forExperianshareholders,italsohasalongwaytogo.


European


Markets,


pageM23


EmergingMarkets


Korea Faces a New World


ByCraigMellow


IS SOUTH KOREA DOWN FAR ENOUGH TO START LOOKING UP AGAIN?


Gross-domestic-product growth in the industrious nation of 51 million has


slowedto2%fromanaverageabove7%since1960.The iSharesMSCISouth


Korea exchange-tradedfund(ticker:EWY)haslost6%thisyear,comparedwith


a7%gainforglobalemergingmarkets.That’swretched,giventhattheETF’s


two dominant names, semiconductor heavyweights Samsung Electronics


(005930.Korea)and SKHynix (000660.Korea),areup17%and28%,respectively.


SouthKoreaisconfrontingnewexternalproblemsandolddomesticbottle-


necks.Countamongthenewissuestensionswithitstwocriticaltradingpart-


ners,ChinaandJapan.BeijinghasorchestratedasoftboycottofKoreanexports,


evenK-Popbands,sinceSeoulagreedtobuyaU.S.antimissilesystemin2017.


Tokyoisthreateningtochokeoffkeycomponentsforthesemiconductorgiants


inthelatestflare-upofthelong-runningfeudoverreparationsforJapan’sWorld


WarIIoccupation.U.S.-Chinatradetensions,whichboiledoveragainwithPresi-


dentDonaldTrump’slatesttariffescalation,aren’tgreatforSouthKorea,either.


Internally,Koreacontinuestostrugglewithrelianceonits chaebol— sprawling


family-controlledconglomerates(includingSamsungandSKHynix),thatremain


resistanttoimprovingshareholdervalue.Theaveragestockholder“payout”—is


apaltry17%inSouthKorea,comparedwithabout50%inotherAsianmarkets,


saysJamesLim,whoheadsKorearesearchforAsia-focusedhedgefundDalton


Investments.


Youthunemploymentismuchhigherthanthenational4.4%figuresuggests.


That’sonefactordrivingtheworld’slowestbirthrate(1.1childperadultwoman).


PresidentMoonJae-in’sattempttospurgrowthwitha29%minimum-wagehike


seems to have aggravated joblessness. “The mood in Korea is not good,” says


JamesPerson,aKoreaspecialistattheJohnsHopkinsSchoolofAdvancedInter-


nationalStudies.“Youngpeoplecan’tevengetapart-timejob,andfeellikethey


can’t marry.”


AllofwhichtellsLim thatit’stimetobuyqualityKoreancompaniesatvalua-


tionsthatarenearlybacktopost-2008levels—suchasHynixparent SKHold-


ings (034730.Korea),whichisdown14%thisyear.“Theyhavegreatbusinesses,


they’retradingatlessthan60%ofnetassetvalue,andnobodycares,”hesays.


Anotheronehelikesis MeritzFinancialGroup (138040.Korea),aninsur-


ance-to-brokerageholdingthattradeswellbelowbookvaluedespitea20%run-


upyeartodate.SouthKorea,withtheworld’shighestdensityofPh.Dspercap-


ita,alsooffersdynamicinternetplayerswhoareindependentofthe chaebol, like


social-mediachamp Kakao (035720.Korea)and Naver (035420.Korea),whichfo-


cuses on search and messaging.


Not every investor will have Dalton’s patience—it holds investments up to


sevenyears—orconfidenceinabenignoutcometotheJapandispute,whichwas


reignitedbyaKoreancourtdecisionthatwartimeslavelaborerscouldsueJapa-


neseindustrialicons NipponSteel (5401.Japan)and MitsubishiHeavyIndus-


tries (7011.Japan). “I’ve never seen this historical argument actually affecting


trade cooperation before,” Person says. “It’s frightening.”


Tokyo’sthreatscouldalsopushSouthKoreatoseethattheworlditthrived


in—oneofintegratingsupplychainsandexport-ledgrowthbasedonnationalin-


dustrial champions—is fading, says Shihoko Goto, who heads Northeast Asia


studiesattheWilsonCenterinWashington,D.C.“There’squitealotKoreacan


dotobemorecompetitiveinthe21stcentury,”shesays.Basedonitspast,itmay


well do it.

Free download pdf