CNBC's UK Exchange newsletter: Britain's £72 billion under-the-radar success story

CNBC

5 days ago

One of the City's most prominent investment bankers recently spelled out to me the challenges, as he saw them, faced by the U.K. economy.
He argued that, as a country, Britain does not really make much that the rest of the world wants to buy from us these days, aside from a few honorable exceptions, including cars, luxury goods, aerospace and defense components and Scotch whisky.
Meanwhile, he went on, sectors where the U.K. was once a world leader, such as financial services, have not really recovered from the global financial crisis (although he might have added, in the wake of last week's Mansion House speech, that the government has at least recognized the extent to which post-crisis regulation is holding back the sector).
So what, he asked, are the strengths that the U.K. economy still enjoys? Put on the spot, I suggested a world-class life sciences sector, a world-leading legal and professional services sector and some of the globe's greatest universities.
Ironically, these sectors are all customers for one of the U.K.'s most successful companies, which happens to publish its half-year results on Thursday this week. And, shockingly, there is a chance you may not even have heard of it.
Yet, RELX is now the seventh-largest company in the FTSE-100 and, with a market capitalization of £71.9 billion ($96.8 billion), valued roughly as much as the combined value of Tesco, Vodafone, International Airlines Group (the parent of British Airways) and Schroders.
This "global provider of information-based analytics and decision tools for professional and business customers," as it styles itself, has achieved this heady valuation — it currently trades on a price-earnings ratio of around 32 times historic earnings — thanks to years of consistently delivering sales and earnings growth and solid cash generation.
RELX has also grown its EBITDA (earnings before interest, taxation, depreciation and amortization) margin, which currently stands at a healthy 39.5%, in four of the last five years. Its total shareholder returns over the last decade or so is the best in the FTSE-100.
The London-based company operates in four market segments, of which the biggest and most profitable, for now, is risk.
Its LexisNexis Risk Solutions business provides data and analytics services to customers in 180 countries around the world, including 85% of the Fortune 500, nine of the world's top 10 banks and 23 of the world's top 25 insurers.
Next up is the Amsterdam-based Scientific, Technical & Medical (STM) division, which supplies analytical tools and scientific and medical information to researchers and healthcare professionals. The third-largest segment is legal: New York-based LexisNexis Legal & Professional hosts more than 161 billion legal and news documents and records accessed by some 1.1 million legal professionals.
Last but not least is Exhibitions, currently growing sales and profits faster than any other part of the business, which may reflect — even years on — continued pent-up demand from the Covid-19 lockdowns.
It runs a diverse array of events including New York Comic Con, the China Medical Equipment Fair, the London Book Fair and JCK, the world's largest jewelry industry trade show, which takes place annually in Las Vegas.
One of the more remarkable things about this company is where it has come from.
Previously called Reed Elsevier (it rebranded itself as RELX in February 2015), it was formed in 1993 by the merger of Elsevier, a Dutch scientific publisher with Reed International, a British company which in the 1970s was best known as one of the country's biggest publishers of newspapers — including the Daily Mirror — magazines and comics.
The latter included titles such as Whizzer and Chips and Roy of the Rovers that generations of British schoolchildren grew up reading.
Remarkably, at the turn of the century, it was generating nearly two-thirds of its revenues from print products, but over the subsequent decade migrated most of its business to electronic media. Print now accounts for just 4% of revenues.
The journey has not been without bumps in the road, most notably when, in November 2009, it replaced Ian Smith, its then chief executive, just eight months after he had succeeded Crispin Davis, the long-running CEO who had begun equipping the business for the digital era.
Smith's successor Erik Engstrom, a former Elsevier CEO, has been in the job ever since and has built the business both organically and by regular bolt-on acquisitions, including five last year alone.
He has also been unafraid to dispose of businesses at times. What has really excited investors is that the business is seen as one of the big winners from the artificial intelligence boom. It began incorporating AI into its products more than a decade ago and AI is now embedded in many of them.
For example, at the full-year results in February, Engstrom noted that, in the risk division, more than 90% of divisional revenues come from machine-to-machine interactions.
In legal, it is busy rolling out Lexis+AI, which it claims is the world's first generative AI platform for the legal profession.
Similarly, in STM, the company has launched a workflow product called ScienceDirect AI, which helps researchers instantly access relevant copy from peer-reviewed research articles and book chapters as they conduct investigations.
It is also helping scientific publishers tackle integrity issues — something increasingly important in a world where misinformation and disinformation risk undermining confidence in research.
All this investment — it is one of the top 10 spenders on research and development in the FTSE-100 — gives the company a legitimate claim to be one of the U.K.'s biggest tech companies even though it is traditionally thought of as a publisher.
Yet, there is also an argument that RELX, like competitors such as Wolters Kluwer (in scientific publishing) and Thomson Reuters (in risk and legal) needs to keep investing heavily to stay ahead, while in science in particular there is growing competition from open-source repositories such as arXiv and SSRN.
Corners of academia have long groused about the amount of money university libraries must pay companies like RELX and a campaign, the Cost of Knowledge, was organized some years ago in an attempt to get academics to boycott Elsevier.
The University of California Los Angeles briefly cancelled its contract with the company in 2019. All that said, RELX is still the very definition of what investors call a "quality compounder" — a business that consistently reinvests at a high return on capital.
Other examples in the FTSE-100 include Experian, another global data provider and Halma, the safety and healthcare technology company. They are exactly the kind of businesses with which the U.K. is earning its living in the world in the 21st century.Should London Stock Exchange trading be open 24 hours?
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