I just bought Nick Train’s new FTSE 100 stock

Edward Sheldon, CFA
·3-min read
UK investor holding smartphone and monitoring shares
UK investor holding smartphone and monitoring shares

Back in October, I noted that legendary UK fund manager Nick Train had just bought shares in FTSE 100 technology company Experian (LSE: EXPN). This trade looked interesting to me. Train – who’s sometimes referred to as ‘Britain’s Warren Buffett’ – is one of the best in the business. Meanwhile, I’m bullish on the ‘data’ theme.

At the time, Experian’s share price was hovering around the £30 mark and its forward-looking price-to-earnings ratio was close to 40. That was a little expensive for my liking. However, recently, Experian shares have pulled back to near £25 and the P/E ratio has been around 35, falling to 30 using next year’s earnings forecast. On the news of this pullback, I’ve added the FTSE 100 stock to my own portfolio.

Why I like this Nick Train FTSE 100 stock

There are a number of things I like about Experian. One is that, after collecting credit information on consumers for nearly 25 years now, the company has access to an extraordinary amount of data. In today’s data-driven world, the company looks well-positioned for success.

I also like the fact that the company is shifting from simply selling this data to selling it enhanced by decision tools. This strikes me as an excellent strategy. Nick Train believes the shift to decision tools is “what will drive substantial growth over the next decade.”

Additionally, I like the fact there are only a few players in the industry. This gives Experian a competitive advantage. This is reflected in the company’s financials. Over the last three years, return on capital employed – a key measure of profitability – has averaged nearly 20%. Meanwhile, over the last decade, Experian has doubled its dividend payout.

Growth is set to pick up

This year, Experian’s growth has been a little muted due to Covid-19 and the tough macroeconomic environment. Half-year results, posted on 17 November, showed organic top-line growth of just 2%. H1 benchmark earnings per share were also up just 2%.

Looking ahead however, performance is expected to pick up. For the year ending 31 March 2022, City analysts expect Experian to generate revenue of $5,670m. That’s about 8% higher than the expected revenue figure of $5,229m this year. Meanwhile, net profit for FY2022 is expected to come in at $1,053m, up 15% on the $914m figure expected this year.

It’s worth pointing out that in the group’s H1 results, management sounded confident about the future. “While Covid-19 has significantly impacted the macroeconomic environment, it has also catalysed trends which play to Experian’s strengths. Once the crisis abates, we believe we will be strongly positioned to take advantage of the secular growth trends and we are excited by the opportunities we see ahead,” said CEO Brian Cassin. That statement sounds quite positive, in my view.

Long-term growth story

Of course, this Nick Train-backed stock isn’t without risk. One key risk is the valuation. On a forward-looking P/E ratio of about 30, Experian shares aren’t cheap.

Another is the debt on the balance sheet. At 30 September, net debt was $3.9bn. The group ended the first half of the year with a net debt to EBITDA ratio of 2.2. This is something to keep an eye on.

Overall however, I think the long-term story here is attractive. I’m happy that this FTSE 100 technology stock is now in my portfolio.

The post I just bought Nick Train’s new FTSE 100 stock appeared first on The Motley Fool UK.

More reading

Edward Sheldon owns shares in Experian. The Motley Fool UK has recommended Experian. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020