The FTSE 100 index is home to many wonderful companies. Several have been operating for decades and many are leaders in their respective fields.
One such business is RELX (LSE:REL). It’s a global provider of analytical tools for companies and professionals.
Despite FTSE 100 companies being UK-listed, more than 80% of those companies’ sales are from overseas markets. And it’s a great way to gain exposure to often faster growing markets outside of UK.
RELX is no exception. It sells to customers in more than 180 countries, and 60% come from North America.
FTSE 100 top pick
There’s a lot to like about this business. It benefits from strong growth, with sales and profits above historical trends.
This is being driven by a shift towards higher growth analytics. Last year, operating profits surged to £2.7bn. That’s 25% more than before the pandemic.
One measure of a high-quality business is return on capital employed. At 22%, RELX scores highly. To me, this shows it can efficiently turn capital into profits.
Part of its magic here is due to the high proportion of recurring sales. More than half of the business is subscription-based.
That’s always good to see, in my opinion. Repeat purchases by customers provides stable and predictable sales versus one-off payments.
This is encouraging
As a potential investor, two other factors I’d consider are dividends and share buybacks. Both of these look encouraging.
RELX offers a modest 2% dividend yield, but it’s growing. It recently hiked its dividend by 10%. One other point to make is that these payments are comfortably covered by its earnings.
I usually like to see a minimum dividend cover of 1.5 times, but RELX delivers a more impressive 1.9 times.
Companies sometimes buy back their own shares. As this reduces the number of shares in circulation, it can often boost their value. That’s why it’s encouraging to see that RELX completed £500m of share buybacks last year and intends to deploy £800m for the same purpose in 2023.
Things to note
A few things to bear in mind. Almost a £1bn of sales comes from its Exhibitions segment and this is mainly reliant on face-to-face contact.
Pandemic restrictions limited people’s ability to travel and any future events and natural disasters could do the same again. Also, this part of the business still hasn’t fully recovered to pre-Covid levels.
With a price-to-earnings ratio of 22, it’s certainly not a value share.
But for a high quality, growing and profitable FTSE 100 business, sometimes it’s worth paying a bit more.
As veteran investor Warren Buffett once said in a letter to shareholders, “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.
Final thoughts
Overall, I’d say that RELX is a wonderful company. Its business quality really shines, and its vast archive of data should create barriers to new competitors.
With so few data and analytics companies in the FTSE 100, this is a share that I’d put at the top of my list. If I had spare cash to invest today in my Stocks and Shares ISA, I’d buy RELX.
