Experian pays seven times sales for PHC, half-year profit rose - UPDATE

6th Nov 2013 07:07

- Experian buys Passport Health Communications for seven times' 2013 sales- Pre-tax profits in half-year rise- Revenue growth across all regions- Interim dividend up seven per cent- Jefferies downgrades rating from 'buy' to 'hold'Information services company Experian announced the acquisition of Passport Health Communications on Wednesday as it reported a rise in half-year profits and revenues in line with expectations. The group has agreed to buy Passport Health, a provider of data, analytics and software in the US healthcare payments market, for $850m.At the same time Experian posted a pre-tax profit from continuing operations of $480m for the six months through September, compared to $73m a year earlier, driven by growth across all regions and business lines. Earnings before interest and tax (EBIT) from continuing operations increased to $608m from the prior year's $586m.The EBIT margin from continuing activities was maintained at 26.0%, in line with guidance.The company achieved organic revenue growth in Latin America, the UK and Ireland, North America and in Europe, the Middle East, Africa and Asia Pacific."With the positive structural industry drivers and the targeted investments that we are making in our growth programme including the acquisition of Passport Health Communications, we are confident that we are well positioned to sustain premium growth into the future," said Chief Executive Officer Don Robert."For the second half, we expect organic revenue growth to be in a similar range as in the first half, and for the full year, we continue to expect modest margin improvement (at constant currency) and to convert at least 90% of EBIT into operating cash."Experian will return to shareholders an interim dividend of $0.115 per share, up 7%. Another sizeable acquisition, some analysts sayHowever, the market reacted negatively towards the results and the acquisition with the share price falling 6% in morning trading. "Although the Passport Health Communications transaction should be EPS accretive [by 1.5%], we believe EBITA needs to increase from $30m to $80m to cover its cost of capital," said Jefferies International. The price paid for PHC equates to seven times forecast sales for 2013. As a reference, Google is currently trading at 4.63 times' sales, even if it must be taken into account that the two companies are presumably (PHC revenues have been growing at a 20% clip) in different stages of their growth. The broker also said Experian's second-half revenue outlook is slightly below its 7% estimate. Its analysts noted that Experian's previous guidance centred on a "mid/high-single digit increase". Jefferies downgraded its rating from 'buy' to 'hold'. Shares dipped 6.25% to 1,184p at 10:30. Experian stock has appreciated in value by no less than 375% since November 17th 2008.RD