Portfolio Update – RELX Purchase

Update on the latest addition to the Global Income & Growth Fund…

During November we initiated a position in RELX in the TB Saracen Global Income & Growth fund.  We have owned RELX (or Reed Elsevier as it was known then) in the past and have followed the company for years.  It has remained on our Wish List due to its sustainable revenue growth, cash conversion, progreesive dividend payments, good balance sheet and strong ROIC.  The sectors where RELX operates have long-term attractions.  Within its four divisions it is exposed to academic research and the publication of high end journals (STM), Risk & Business Analytics, Legal Analytics and Exhibitions.  The Data Analytics side in particular offers strong growth potential, due to the ever more complex world we live in and the need of companies to have a greater understanding of their customer base.

We delayed purchasing shares for two reasons. Firstly, we wanted to fully understand the risks attached with regards to a shift in business model in the STM division from subscription only to open access.  Secondly, our apprehension was based on the valuation of the shares: we required a greater certainty of the risks on our earnings forecast.  In our proprietary Worst Case modelling the potential downside risk was too big.  However, after various contacts with the company in recent months we are much more reassured about RELX’s positioning and the outlook for academic journals.

Most importantly, we feel that the appointment of a new divisional CEO in February 2019 led to a change on RELX’s side of the contract negotiations. Since then, we have seen one big dispute with the Dutch universities settled and we expect the two main outstanding contracts in Germany and the University of California to be settled in due course.  It also became apparent in our conversations that a move to open access will not have a negative impact on margins.

The perceived risks have impacted valuation in recent years and led to some derating of RELX.  In addition, in 2020 the Corona virus has adversely impacted the Exhibition division but it is our belief that the demand for physical exhibitions will return farily quickly and strongly once restrictions are lifted. The rollout of vaccines means that 2021, especially H2, should see a much better growth and margin profile than 2020.

During this crisis RELX has experimented with virtual exhibitions and the uptake has been surprisingly positive.  This could be seen as an extension to the existing business, which again could help contribute to a rerating of the shares.


At Saracen we like to buy high quality businesses at attractive valuations.  With our increased comfort in RELX’s strategy, especially within STM, we felt that RELX shares had reached a buying level in recent weeks with a renewed sell off resulting in the 2021 PE ratio slipping below 17x.  At the same time the dividend yield is a solid 2.5% and the company has avoided a dividend cut during 2020.

Additionally, the ROIC profile remains strong at  close to 20%.   We initiated a 1.5% position, which we will increase on any share price weakness.

Graham Campbell (graham@saracenfundmanagers.com)

Bettina Edmondston (bettina@saracenfundmangers.com)

Important Information: The views and opinions contained herein are those of the author’s and may not necessarily represent views expressed or reflected in other Saracen Fund Managers Ltd communications, strategies or funds. This material is an opinion piece and intended to be for information purposes only. This material is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Saracen Fund Managers Ltd does not warrant its completeness or accuracy. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Saracen Fund Managers Ltd has to its customers under any regulatory system. The data provider and issuer of the document shall have no liability in connection with the third-party data. The Prospectus and/or saracenfundmanagers.com contains additional disclaimers which apply to third party data. Regions/sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this document include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.

Saracen Fund Managers Limited is Authorised and Regulated by the Financial Conduct Authority.