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RELX upgraded to ‘overweight’ by Barclays as valuation gap reopens following share underperformance

Published: 20:06 24 Sep 2018 AEST

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Over the last three months, RELX’s share price has declined 3% to 1,552p

Online professional and business publisher RELX PLC (LON:REL) has been upgraded to ‘overweight’ from ‘equal weight’ by analysts at Barclays after a spell of underperformance in the shares caused a valuation gap to reopen.

The investment bank, which holds a target price of 1,740p on the stock, said it had downgraded the FTSE 100 firm earlier in the year due to concerns that organic growth in its Scientific, Technical and Medical (STM) division would slow from 2% to 1% and eventually 0% over several years, adding that “noise from library consortia” would hold back the share price as investors anticipated further weakness in the STM division.

READ: RELX weak as UBS reiterates ‘sell’, cites news European research funders seeking to introduce Open Access system

However, after recent underperformance and a 2.5% upgrade to its earnings per share (EPS) forecasts, Barclay’s analysts said they now saw “good value” at a 16.7x price/earnings (P/E) ratio for the 2019 financial year and 15.6x P/E in 2020.

The bank added that compared to competitors such as Pearson PLC (LON:PSON) at 14.8x P/E and Wolters Kluwer at 17.8x P/E, “the RELX number looks interesting. And compared to the group of consumer staples growing at 4% organic (another natural peer group), a clear valuation gap has opened again”.

Analysts also said that with 2% growth in the STM division guaranteed for the current year and “a reasonable chance” of 1.5% growth at least in 2019, they thought that “delivery can reassure the market”.

Over the last three months, RELX’s share price has declined 3% to 1,552p at last close from around 1,601p in late July.

The firm took a knock earlier this month when Swiss investment bank UBS reiterated a ‘sell’ rating on the stock with a 1,550p price target on news that European research funders are seeking to introduce an Open Access system.

In late morning trading Monday, RELX shares were up 0.5% at 1,561.5p.

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