Global credit bureau Experian (LSE: EXPN) reported a very healthy 6% year-on-year jump in constant currency revenue in Q3 due to 4% organic growth and the effects of a small acquisition in the US. This is a very good level of growth for a company that posted $4.6bn in sales last year and digging deeper into the results shows that its future growth potential is still very high.
Continued growth will be coming from Experian’s exposure to fast expanding economies in Latin America and Asia. Brazil is already the company’s third biggest market after the US and UK and RoI and sales in the South American country are continuing to grow despite a poor economic situation. Indeed, in Q3 organic revenue growth in all of Latin America was a very impressive 8%.
Higher sales in South America and a 6% rise in organic revenue from EMEA more than offset the currency headwinds Experian is facing from the weak pound. And in the long run the potential from these two regions is rather astounding because as incomes rise, credit usage also increases. This is a boon for credit bureaux like Experian as banks need to access the records of millions of new customers applying for credit cards, mortgages and any other loans.
As if the combination of long-term growth potential in emerging market and stable cash flow from developed markets wasn’t attractive enough, Experian also has the benefit of being a largely non-cyclical company. Financial institutions and other clients need Experian’s services even during recessions, as evidenced by the company recording organic sales growth each year from 2007/09 amidst the deepest downturn in recent memory.
Shares are pricey at 21 times forward earnings but with enviable sales growth and solid shareholder returns through dividends and share buybacks, I still reckon Experian is one of the best defensives out there.
Stick with tradition
If you prefer your non-cyclical shares to be the more traditional sort, one option is consumer goods giants Reckitt Benckiser (LSE: RB). The globe-spanning seller of Durex, Lysol and Nurofen has been in the media for all the wrong reasons of late with a former director jailed in South Korea and the CEO in hot water over his massive pay cheque. But there’s still reason for investors to be positive.
That’s because beneath these poor headlines the company’s trading is continuing to turn heads in the City. Q3 results released in October showed a 4% year-on-year increase in like-for-like sales as developing market consumers snapped up 8% more of RB’s products than in the same period a year prior. Aside from this underlying growth, the weak pound is also helping out as actual revenue rose 9% year-on-year and a stunning 17% in Q3 alone.
While the currency translation benefits of the weak pound don’t mean much over the long term, they will certainly help out British investors once dividends are paid. As with Experian, RB’s defensive nature, strong growth prospects and solid dividends have sent shares trading at lofty valuations, 22.9 times forward earnings in this case. While this is certainly a premium price, RB is a premium company for risk-averse investors who want to buy shares and hold them for decades.
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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Reckitt Benckiser. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.