Acquisitions Of Illion And ClearSale Will Strengthen Future Market Presence

Key Takeaways

• Strategic acquisitions and innovation in platforms like Ascend enhance Experian's market position, drive revenue growth, and improve net margins with new capabilities.
  
• Expanded product ecosystems and consumer engagement in high-demand markets drive strong revenue growth and earnings potential.
  
• Experian faces challenges to growth in Latin America B2B due to macroeconomic uncertainties, currency risks, and subdued lending conditions impacting key markets.

Catalysts

Operates as a data and technology company in North America, Latin America, the United Kingdom, Ireland, Europe, the Middle East, Africa, and the Asia Pacific.

• Experian's strategic acquisitions, including illion in Australia and ClearSale in Brazil, aim to expand their market presence and contribute positively to future revenue growth and market positioning, adding scale and new capabilities in fraud and data services.
  
• The company is leveraging innovation and integrated platforms, notably the Ascend platform, to drive automation, client solutions, and efficiencies, likely supporting ongoing growth in revenue and improving net margins through enhanced service delivery.
  
• In Consumer Services, ongoing product ecosystem expansion and increased membership are driving strong revenue growth, particularly in high-margin areas like insurance and premium services, enhancing future earnings potential.
  
• The rollout of generative AI and other technological enhancements is expected to enhance productivity, free up resources, and potentially improve net margins through cost reductions and efficiency gains.
  
• With continued focus on consumer engagement and offerings, including in fast-growing markets like Brazil and health services in the U.S., Experian is set to capitalize on increasing demand and revenue diversification, potentially boosting earnings as economic conditions improve in key markets.

Experian Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Experian's revenue will grow by 8.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.2% today to 19.4% in 3 years time.
• Analysts expect earnings to reach $1.8 billion (and earnings per share of $2.0) by about March 2028, up from $1.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.1x on those 2028 earnings, down from 36.0x today. This future PE is greater than the current PE for the GB Professional Services industry at 24.3x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.11%, as per the Simply Wall St company report.

Experian Future Earnings Per Share Growth

Risks

• Experian's growth prospects in Latin America B2B were flagged as lower than expected, with some concerns about macroeconomic uncertainties such as rising interest rates, which could dampen revenue and overall earnings.
  
• The subdued lending environment in key markets, including still-constrained conditions for unsecured credit volumes in North America, poses a risk to Experian's growth, potentially impacting their revenue streams and net margins.
  
• There is a potential risk of currency fluctuations, especially with the Brazilian Real against the U.S. dollar, which could lead to a 2% headwind to revenue and EBIT growth, thereby affecting earnings.
  
• Increasing competition in acquisitions and maintaining favorable prices, despite more realistic valuations, could impact profitability and return on investment if Experian overextends financially on strategic acquisitions.
  
• Despite current organic growth, the future impact of economic factors like inflation and interest rates in Brazil remains uncertain, which could affect future B2B and Consumer Services revenue growth projections in the region.

Valuation

• The analysts have a consensus price target of £41.611 for Experian based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £51.99, and the most bearish reporting a price target of just £28.83.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.2 billion, earnings will come to $1.8 billion, and it would be trading on a PE ratio of 34.1x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of £35.94, the analyst price target of £41.61 is 13.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.