Reed Elsevier (REL LN/REN AE): Q1 IMS – more of same and still range bound

Reed’s Q1 IMS statement this morning was more of the same, which for     those looking for excitement and change will have been a damp squib.     Beyond the date, the release was bereft of numbers while the     commentary essentially reiterated the trends in trading seen last     year and expected to be maintained in 2012; namely ‘another year of     underlying revenue and profit growth’, but clearly not much of     either.  For the moment, the Science Journal operations (Elsevier)     are shrugging off yet another campaign by by some vocal academics     for a boycott, while the core Legal information activities do not   seem to be doing any worse than competitor Westlaw. Health     publishing remains mixed (clinical tools and medical research up,     pharma again down) and Risk Solutions (WYTe sustaining +4% u/l revs)     are underpinned by continued strong growth in its insurance segment     and business services offsetting weaker screening. Exhibitions     continues to grow well, albeit probably just shy of +10% (u/l) and     below last year’s +12% as Southern European softness dilutes the     average. RBI, meanwhile continues to be selectively dismembered via  disposals with the rump again providing a mixed performance of     rising data services and falling print.

With the management content to muddle through with broadly the existing portfolio and strategy, the shares continue to lack a     catalyst for a re-rating. At current levels, we estimate that the shares trading on an operating FCF yield of approx 7.5%, to discount     growth of approaching +4% pa for FY12&13.  While not aggressive,     this is not materially at odds with our prospective organic revenue growth forecasts out to FY14 and we continue to see the shares as     range bound within a +3-4.4% CAGR growth rating range. The shares go  xd a 15.9p net dividend (3.0%) tomorrow (25 April).

          Reed Elsevier Plc  (REL-LN)      /Reed Elsevier NV  (REN-AE)
Share price                                      526p/€9.1
Growth rating FY3                    +3.4%/+3.2%
Revenue CAGR FY1-3                    +3.4%
Target CAGR FY3                            +3.7%
Target price                                  527p/€9.3
Upside                                             +0%/+3%
Recommendation:                       HOLD
XD tomorrow (25/4/12): 15.9p (net)
KEY POINTS IN IMS
“Underlying growth rate  in Q1 were consistent with the 2011 full year trends.” –       FY11 organic revenues/EBITA +2%/+4% – ie still dull
“Full year outlook: 2012 is on track to be  another year of underlying revenue and profit growth” -        FY12e organic revenues/EBITA +3%/+5%

By Division
Elsevier: “By the end of Q1 completion subscription of renewals was well progressed in both Science &         Technology and Health Sciences. The global customer budgetary         environment is broadly similar to last year, with variations by  both geography and customer. Research article submissions,         articles published and usage have continued to show good growth,  and sales of databases and tools are growing well.“  –       Basically, the campaign by some academics (incl Nobel       mathematician) to boycott the Journals is not having any material  effect. Indeed Maths submissions are at a record. None of this       however should come as too much of a surprise, but should  alleviate some short-term perceived risk.

In Health Sciences, “goo growth in global medical research and clinical decision support  was offset by continued weakness in pharma promotion, and         increasing pressure on print book sales to individuals, driven by format migration and the weak economic environment. Full year         outlook: We expect another year of modest underlying revenue  growth at Elsevier, underpinned by research volume growth and growing demand for electronic products and tools”. –       WYT(e) organic revenues/EBITA for Elsevier of +2%/+3%.  Pharma continues to obscure an attractive clinical/research publishing       business.

Lexis exits Risk Solutions  “The insurance data & analytics business continued to perform strongly in Q1 reflecting solid demand for core         underwriting products and growth from new solutions. Business  services also performed well, driven by continuing product         success in financial services and corporate markets. Screening         solutions saw moderate revenue growth in Q1, reflecting earlier timing of the spring ramp up in retail-related hiring.         Government revenue declines continued in Q1, with growth at the  state and local government level more than offset by federal budget constraints and last year’s wind down of certain federal         contracts.Full year outlook: The good underlying growth in  insurance and business services is set to continue, while the         market outlook for screening remains uncertain and the         government environment is mixed” – WYT(e) organic revenues/EBITA of +4%/+5% for FY12. Pick-up in business segment is       slightly better than we had been expecting at this stage.?
LexisNexis Legal &         Professional “Underlying revenue growth remained marginally  positive in Q1 in subdued market conditions. In the US good         growth in usage, new sales of online research and litigation  tools continued, while print products and web based listings         declined. In international markets, the on-going format         migration was reflected by declining print sales and good growth in online solutions. Full year outlook: The scope for short term         underlying revenue growth or margin expansion remains limited given the current market environment”. – WYT(e) organic       revenues/EBITA for FY12 of +1.5%/-2%. Divisional trading no worse       than competitor Westlaw and some evidence of new small law products getting traction, but overall this division continues to       struggle.

Reed Exhibitions Reed Exhibitions has started the year well, with good Q1 growth in annual events in North America, Asia and Latin America. European         annual events have seen growth, but at somewhat lower levels than last year, particularly in southern Europe. Q1 benefited from the net cycling in of biennial events. In Q1 we completed         the buy-out of our Brazilian joint venture and made smaller acquisitions in Brazil, China, and in the alternative energy         sector. Full year outlook: The Q1 trends, with good growth in most annual shows, are expected to continue. The positive impact  of biennial cycling in 2012 will be particularly apparent in the         first half”. -  WYT(e) organic revenues/EBITA for H1 FY12  of +4.5%/+8%. Notwithstanding S. Europe, H1 organic (on annual       shows) may be nearer +10% and therefore a beat on our +4.5% (excl biennials). Some scope for upgrade, albeit a slowing forward bookings might moderate the enthusiasm.

Reed Business Information         “The major data services businesses continued to perform well in   Q1, although the US construction sector remains weak. The recent         acquisition of Accuity is delivering on expectations. Leading  brands remained stable, while other business magazines and services saw continued declines reflecting weak print         advertising markets in Europe. Significant progress has been  made in increasing the focus of the RBI portfolio on paid content and subscription based online data services. In Q1 announced the intention to divest RBI’s Australian magazine and marketing services activities, and Variety, the US title serving         the entertainment industry. In early April we announced the sale of TotalJobs, the UK’s leading online recruitment advertising  business. Full year outlook: The underlying revenue growth rate         will be marginally diluted by the sale of TotalJobs. Overall, we expect the good underlying growth in data services to be offset         by print advertising declines”.  -  WYT(e) organic  revenues/EBITA for H1 FY12 of -1%/-11%. For once RBI has sold a business that will dilute its organic growth stats (ie one that       was growing – TotalJobs)                            

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