We live in the information age and newly listed Experian should be a long-term beneficiary.
Information is becoming ever more important in the 21st century, and Experian
(LSE: EXPN)
is collecting information on you. It then sells this information to banks, insurance companies and all sorts of other businesses.
Experian is best known for credit scoring, but it also has information that can help businesses in lots of other ways. For example, it can help companies target their marketing efforts and stop them sending mail shots for, say, hot-water bottles to party-loving teenagers.
Experian also claims that it's very good at analysing all this information so that it becomes useful. Chief executive Don Robert says: "We turn data into decisions."
Even better, having gathered all this information, Experian will gladly sell it back to you. Sounds like a good business to me!
Until last week, there was arguably no clean and easy way for Brits to invest in the information sector. True, you could buy shares in US player Equifax
(NYSE: EFX)
, but many British punters aren't keen on overseas shares, and your investment could be hit by a falling dollar even if Equifax's share price rises.
The other option for UK investors has been to buy shares in retail conglomerate GUS. The problem was that you were also exposed to GUS's other operations, including the Argos and Homebase chains in the UK.
GUS's share price has arguably been held back in recent years precisely because it was a mishmash of businesses. Fund managers tend not to favour conglomerates these days; they like to make their own investment choices rather than let the boss of a conglomerate make decisions for them.
But that's all changed now. Experian has demerged from GUS and its primary listing is on the London market.
I think Experian's biggest downside is that it's acquired many other businesses in recent years; takeover sprees often lead to problems later on. The business is also still very reliant on the US -- around 60% of revenues come from there.
That said, I think there is still a fair bit of potential for organic growth, so the crucial question is whether that potential is already in the share price.
Experian floated at 560p, and the shares are currently trading at 572p, valuing the business at £5.8bn. Seymour Pierce has forecast earnings of 29.8p a share this year, rising to 33.9p next year, putting Experian on a prospective price/earnings ratio of 16.8. That's very close to Equifax's forward p/e of 16.7.
Given the growth potential, I think that's a reasonable rating and I reckon Experian could outpace the Footsie over the next few years.
If you'd like to find out more about the company, you might be interested in my colleague Maynard Paton's research article on Experian which was published on Champion Shares last week. Sign up for a 30-day free trial to our share-tipping service and you could read Maynard's research now.
