Experian's High Rating Is Open to Question after Cautious Outlook
the investment column
Edited byAndrew Dewson
Our view: Hold
Current price: 505p (-38p)
The sub-prime crisis that has gripped the financial markets for the past three months may no longer be making the headlines but the fallout has plenty of legs left in it.
Experian, the world's largest consumer credit rating agency, was sharply lower in yesterday's trade on the back of cautious comments on the UK and US markets the company made along with a first-half trading update. To say that the market looks challenging is an understatement.
Even so, the numbers themselves were encouraging despite the underlying market conditions. Total growth for the first half should come in at 17 per cent, 6 per cent of which was organic. The company is confident it will hit market forecasts for the full year, implying pre-tax profits in the region of 425m, translating into per- share earnings of 31.9p.
However, the shares have been highly rated since demerging from GUS a year ago, so it is no wonder the market reacted so negatively to yesterday's statement. But bad news rarely comes in ones and investors have little reason to believe that there is going to be any positive news in the credit markets any time soon.
Of particular concern is the performance of LowerMyBills, a US subsidiary involved directly in the sub-prime mortgage market, where revenues fell by 20 per cent. Experian said that not including LowerMyBills organic growth would have been 2 per cent higher, but that is completely irrelevant.
The news from outside developed markets was more encouraging. The 65 per cent stake in Serasa, a Brazilian agency acquired in June for $1.2bn (590m), delivered organic growth at constant exchange rates of 46 per cent, and with an $800m war chest Experian is well positioned to make further acquisitions.
The shares trade on approximately 14.3 times forecast 2008 earnings, not overly expensive but not exactly a bargain either. The fallout from the sub-prime disaster is just beginning to filter through and the downside risk must outweigh the upside. Despite this solid performance and yesterday's sell off, there are not enough good reasons to buy the shares. Hold.
Our view: Hold
Current price: 528p (+23.5p)
The share price momentum that drove UK Coal to deliver about 300 per cent of upside between January 2006 and April 2007 appears to have run out of steam. Fair enough; the upside was on the back of a re-rating of its property portfolio, and most of it is at the developmental and pre-planning permission stage anyway.
Yesterday, the company confirmed that it has signed a coal supply deal with the German utility giant E. …