RELX Given Additional Boost as Events Business Recovers

Senior Equity Analyst

Michael Field

Over the past decade, RELX has undergone wholesale changes to the structure of the company, taking its exposure to electronic-format businesses from 35% to closer to 90%. This change was achieved primarily through a series of targeted acquisitions and disposals over the years. The company has managed to significantly drive operating margin growth with the improved business mix. Since 2005, operating margins have expanded by close to 50%. This has also been reflected in returns on invested capital, which have increased on an adjusted basis from close to 8% in 2009 to close to 13% in 2021, against a weighted average cost of capital of just 8.3%.

Sixty percent of RELX’s revenue is now subscription-based, while advertising revenue, which had previously been a fundamental component, is now negligible. We believe three out of four of RELX’s businesses are moaty in nature and should continue to benefit from long-term structural drivers. In scientific, technical, and medical, and in the risk division, we believe increased regulation and the requirement for specialist knowledge will continue to drive clients to RELX’s product suite, while in RELX’s legal division, we believe increasing legislation and litigation will continue to drive demand for high-quality products and services such as those of LexisNexis. The exception to our optimism lies in the company’s exhibition business. While we acknowledge the relatively attractive margins stemming from efficiency benefits that come with being the global number-one player, we ultimately see this business as being cyclical and do not see any clear linkage or synergies with the rest of the businesses in the group. That being said, this business has low capital intensity and generates margins not far below the group average in a normal year.

Business Strategy & Outlook

Intangible assets and switching costs create RELX’s narrow moat. The vast majority of RELX’s revenue derives from the provision of data and analytics to corporate clients globally. Over a period of many years, RELX has developed sophisticated databases and decision-making tools that many industries and professions now heavily rely on in order to carry out their daily activities. Examples of such tools are as follows.

In scientific, technical, and medical, RELX’s Knovel is essentially an online library that is used by 700 large clients, including 74 Fortune 500 companies and more than 400 universities. Knovel is focused on the engineering community and offers guidance and best practice information on a huge range of materials, allowing engineers to quickly establish tolerances, environmental impacts, and safety and compliance procedures, all in one place. 

Another example of the type of analytics that RELX provides is in LexisNexis, its flagship product. LexisNexis straddles a number of business areas, including legal and risk. In legal, the product allows lawyers to access a database of case law and precedents dating back to the 1770s, as well as helping to draft legal documents more efficiently and quickly than can be done with conventional applications. 

The tools RELX provides to its clients require significant initial cost and development time, in addition to substantial ongoing maintenance and development costs, with annual capital expenditure of around 5% of revenue across the peer group. For the legal element of LexisNexis, RELX employs hundreds of legal professionals to review and update legal content to ensure it is current and comprehensive, resulting in a catalogue of extremely valuable resources that is core to RELX’s moat.

RELX's second moat source, nonfinancial switching costs, pervades across several business areas. Many of the operating systems and services offered by RELX require significant training and are heavily integrated within various professions. As a result of this, firms are generally reluctant to switch providers frequently, which leads to high retention rates across the business. Moreover, there is a level of inertia around these businesses, chiefly owing to two factors. First, many of the services and systems provided by RELX represent a small proportion of clients' overall costs (in legal this can be as low as 1%-2%), thus it is not the obvious place for clients to look when attempting to cut costs. Second, several industries in which RELX operates are essentially duopolies or oligopolies (such as the legal information industry), and pricing for the most part remains disciplined. As a result, clients have little financial incentive to switch providers, thus leading to high retention rates.

Narrow

Economic Moat

RELX

Reed Exhibitions is an event organiser, with a portfolio of approximately 500 events in 40 countries including UK, Austria, USA, France, Germany, Brazil, Russia, India, China, Australia and the Middle East. Reed Exhibitions, which employs about 3,500 staff, is a division of RELX Group, a provider of professional information and workflow solutions in the science, legal, medical, risk management and business sectors. In 2011, Reed Elsevier made an adjusted profit before taxation of £1,391 million on turnover of £6,002 million.

Reed Exhibitions

Elsevier is an information and analytics company and one of the world's major providers of scientific, technical, and medical information. It was established in 1880 as a publishing company. It is a part of the RELX Group, known until 2015 as Reed Elsevier. Its products include journals such as The Lancet and Cell, the ScienceDirect collection of electronic journals, the Trends and Current Opinion series of journals, the online citation database Scopus, and the ClinicalKey solution for clinicians. Elsevier's products and services include the entire academic research lifecycle, including software and data-management, instruction and assessment tools.

Elsevier

Reed Business Information is a provider of data services, analytics and information to businesses. The company has offices in many countries worldwide including the United Kingdom, United States of America, France, Singapore, China, Germany and Italy. Reed Business Information is part of the Risk and Business Analytics market segment of RELX Group, and is often referred to as RBI.

Reed Business Information

LexisNexis is a corporation providing computer-assisted legal research as well as business research and risk management services. During the 1970s, LexisNexis pioneered the electronic accessibility of legal and journalistic documents. As of 2006, the company has the world's largest electronic database for legal and public-records related information.

LexisNexis

RELX Plc engages in provision of information and analytics solutions for professional and business customers across industries. It operates through the following business segments: Scientific, Technical & Medical; Risk & Business Analytics; Legal; and Exhibitions. The Scientific, Technical & Medical segment is a global information analytics business that helps institutions and professionals advance healthcare, open science, and improve performance for the benefit of humanity. The Risk & Business Analytics segment provides customers with solutions and decision tools that combine public and industry specific content with advanced technology and analytics to assist them in evaluating and predicting risk and enhancing operational efficiency. The Legal segment is a global provider of legal, regulatory and business information and analytics that helps customers increase productivity, improve decision-making and outcomes and advance the rule of law around the world. The Exhibitions segment is an event business, enhancing the effect of face-to-face through data and digital tools. The company was founded by Albert Edward Reed in 1903 and is headquartered in London, the United Kingdom.

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