FTSE 100 stocks are filling the news these days. The stories are all about companies like Rolls-Royce and International Consolidated Airlines, which have been punished severely by the stock market crash. But I think there are some buys that could well be overlooked by investors focused on the headlines.
I see RELX (LSE: REL) as one of them. Formerly known as Reed Elsevier, the firm is active in medical, legal, and business publishing and information services. The company’s exhibitions business has suffered during the Covid-19 pandemic. And the result of that is a 14% fall in the RELX share price since the start of 2020.
By contrast, the FTSE 100 is down 24%, so RELX has done relatively better. But I still think the fall is overdone. As my Motley Fool colleague Andy Ross has pointed out, exhibitions only account for around 16% of the company’s revenue.
The year’s progress
In a nine-month update Thursday, RELX said its Scientific, Technical & Medical (STM), Risk & Business Analytics, and Legal businesses “have continued to see a gradual improvement in underlying revenue growth rates since the end of the first half“. Those three divisions accounted for 84% of revenue and 87% of adjusted operating profit in 2019. With so many organisations relying on the kind of data and analytics that RELX provides, I see it as having one of the more robust business models in the FTSE 100.
So far in 2020, underlying STM revenue is up 2%, Risk & Business Analytics revenue is up 3%, and Legal revenue is up 1%. Exhibitions revenue has fallen by 70%, though the business has experienced some reopening of activity in some countries. It’s still early days, though. And I think the second Covid-19 wave could keep the pressure on for some time yet. But the division is such a relatively small revenue contributor that I don’t see any great threat.
Upbeat outlook
RELX’s outlook for its three main divisions remains positive. The exhibitions business seems like one that will recover in due course. And while we wait for that, I see nothing that should cause serious damage. There are plenty of FTSE 100 companies I could not say that about.
Even at this stage in the stock market crash, analysts still predict a modest 2% rise in earnings for RELX for the current year. That would put the shares on a P/E multiple of a fraction under 21. And that’s a premium rating, with presumably some years of growth built into it. But forecasts for a 2021 EPS rise of 17% would drop that to under 18. And that, I think, is an attractive valuation based on the company’s long-term growth prospects coupled with its resilience.
FTSE 100 stability
RELX pays dividends too. They’re modest with yields of around 2.5%, so not among the FTSE 100’s biggest. But we’re looking at forecast cover of around 1.8 to 1.9 times. And the forecast dividend for 2021 would represent a progressive rise of 35% over five years.
I really do think the RELX share price has fallen further than it deserves in 2020. I’d buy for future growth and for progressive dividend income.