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.