Wednesday, 26 September 2012

Experian (EXPN) ... I remain short

I remain short of Experian. For a fuller list of reasons I refer to my previous EXPN post.
One of my reasons to sell was the group’s approach to acquisitions. Experian has spent $4.5bn on acquisitions since 2006, and when accounting for the benefit this has provided to its top line, I reckon its organic revenue growth has been lacklustre. These acquisitions also appear to have been priced relatively expensively, and bloated its balance sheet with a stack of intangibles. Were one to strip out its goodwill and intangibles, then the group has net liabilities of c. $2.8bn compared to a market cap of c. $16.6bn.
This morning Experian reported that the sale of its price comparison businesses, PriceGrabber and LowerMyBills, had fallen through. In May, it had announced that it was going to sell the businesses to Ybrant Digital (YBRA IN, mkt cap £423m) for US$175m, consisting of US$100m cash and a US$75m loan note. The businesses were to be sold as they had “been non-core to Experian for several years.” I would take that to mean that Experian had been trying to sell them for several years.
I have no clue why the deal fell through. One reason may be that Ybrant may have failed to raise sufficient finance to complete the purchase. This may be possible as from a cursory glance at Bloomberg, it appears that Ybrant has failed to generate more than £1m in operating cash in any one year since 2007. So paying $175m may have been a stretch. Another reason may be that having looked more closely at PriceGrabber and LowerMyBills, Ybrant decided to pull out. In the case of the latter, it would suggest that Experian may have a difficult time realising much value out of the businesses, for which it originally paid a combined $815m.

Valuation

While the consensus earnings outlook for Experian continues to deteriorate, its valuation continues to rise. It is now priced at its highest P/E on forward earnings in five years. I find that odd and reckon that investors should take a closer look at the quality of its earnings, to see whether it warrants such a lofty rating. I did, which is why I sold. 
Experian 2013 & 2014 consensus EPS compared to share price
Experian forward year price-to-earnings multiple
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