Stock story: RELX Group

Providing data and analytical solutions for the education and research industries. (Reading time: 2 mins)

Stock story: RELX Group

October 2021

Big data is essential for operating a successful business. From helping insurers to predict risk, scientists develop new medical breakthroughs, and businesses target consumer groups and prevent online malfeasance, the use of data and analytics coupled with improved technological capabilities is a differentiating factor to success.

The UK-based RELX Group fulfils this need. The company renamed from Reed Elsevier is a leading provider of academic journals and platforms (Elsevier, which has over 2,650 titles on its ScienceDirect platform including The Lancet), database tools (Reaxys, which supports early-stage drug development), insurance decision tools, fraud analytics and leading legal electronic reference and decision tools (LexisNexis).

RELX, which describes its purpose as enabling its customers to make better decisions, get better results and be more productive, has customers in more than 180 countries in the education, medical, insurance, financial services and legal industries.

RELX’s global reach can hide how competitive is the data and analytics industry. The barriers to entry are lower today compared with a decade ago, given improvements in technology. What hasn’t changed, however, is the value of unique and rich data sets. In fact, one could say that when these data sets are combined with talented data scientists, technology advancements (natural language processing and machine learning) and strong product reach, the value is enhanced for customers and providers alike.

RELX combines these capabilities in providing customers with digestible data and analytics as well as tools to improve productivity and business outcomes. RELX’s LexisAdvance online legal research tool, for example, allows users to enter a natural language question. The tool curates and delivers relevant answers, which results in faster answers and fewer searches of the 16 million case law legal decisions and 91 million statutes, regulations, and legislative documents in the US. This assists lawyers to develop their cases more efficiently while tapping into a comprehensive vein of relevant data.

RELX’s larger divisions (Scientific, Technical and Medical; Risk and Business Analytics; and Legal) are the key drivers of business quality. These divisions are network businesses that have resulted in an oligopolistic industry structure for key division products. The divisions have elevated switching costs, economies of scale, deep customer and supplier relationships and trusted brands.

What does this look like, say, for RELX’s largest division, Scientific, Technical and Medical?

RELX has a leading position in its primary research business in terms of journal title quality, title awareness and distribution. That is, RELX owns numerous journal titles, including The Lancet and Cell in which researchers strive to be published. The primary research business is a network business, as authors and readers benefit from improved circulation and the quality of the publication. The virtuous cycle is intensified by the academic need to publish. (Universities require professors to publish to retain tenure. Being published in higher-quality publications can lead to improved salaries and greater funding.) Furthermore, in medical research, publication is a key method to progress new techniques. It is difficult to replicate the brand awareness and distribution that RELX has created.

RELX operates in largely established industries such as education and insurance. The company’s industry positioning and history of innovation have been critical to offsetting disruptive forces to date. RELX, for example, has successfully transitioned from a print business of magazines and journals to a business that generates 87% of revenue from electronic means and with a user base highly reliant on its written and quantitative data sets. RELX is always navigating disruptive threats including the risk of reduced government and corporate spending on research, uncertainty in primary research pricing structures, increased use and acceptance of non-peer-reviewed publications, and improved technology that provides competing analytical tools. These threats aren’t new, and we view that RELX are well positioned to withstand them.

The materiality of ESG risks and opportunities differs by sub-industry. ESG risks are typically lower, for example, in the data and analytics industry. Data security is a typical key risk for the industry. Because RELX has less-sensitive data (highly sensitive data includes personal identifiable data), it’s less likely to be targeted. RELX, however, doesn’t ignore the risk. It prioritises cyber security and data privacy, as such steps are critical to business continuity and brand. Labour management is another key industry risk. Maintaining talent can be challenging in technology-focused roles, given the high demand. RELX prioritises culture, diversity, and inclusion, which we view as key facets for successful team management.

Overall, RELX is a high-quality business that has a unique growth and risk profile. RELX stands to benefit from the long-term growth in R&D by governments, academic institutions and companies while displaying defensive characteristics, given the high level of subscription revenues and the research-focused clients who rely upon the service and are less sensitive to economic circumstances.



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