Experian boosted by rise in loan applications

Increasing consumer confidence coupled with the fear of online fraud helped drive up profits at Experian, the FTSE 100 data provider best known for its credit checking and fraud prevention software.

On Thursday, half-year results revealed a boost to profits, cash flow and interim dividend as consumers and companies around the world took out more loans and finance agreements, triggering the need for more credit checks.

This resulted in 22 per cent revenue growth for Experian’s US credit services division – its largest business segment – and a 6.5 per cent boost to its share price.

Experian holds credit files on 800m consumers worldwide, but its future growth prospects rest on exploiting this data in new ways – whether through anti-fraud applications to pick up bogus transactions, or using algorithms to predict when consumers are likely to switch credit card providers.

“There are certain types of consumer behaviour that you can derive trends from in the data, and hypothesise upon,” said Brian Cassin, Experian’s newly installed chief executive. Predicting when customers might be thinking of switching a credit card balance is one new service its decision analytics division has been offering to large financial institutions.

“The first time they know about it is when a customer leaves, but we can analyse our data and other data sources to predict when a switch may be made,” he said, recognising that this has “wide potential applications” in other areas in future, such as mobile phone contracts.

In the age of cyber crime, Experian’s biggest growth opportunity is anti-fraud products both for institutions and consumers.

Its $324m acquisition in this area, fraud prevention service 41st Parameter, has been rolled out globally from the US in the past 12 months, operating in the UK, Brazil and Australia. The software identifies “dirty devices” stopping fraudsters from using stolen login details when accessing multiple bank accounts from the same tablet, computer or smartphone.

Experian’s consumer services division – which was the weak spot of its US business as it undergoes a rebranding – provides online tools for consumers to manage their credit score and repair the damage from ID theft.

It has rebranded its US consumer website as Experian.com and struck a partnership with FICO, a popular US credit scorer, to distribute its data through Experian’s website in an effort to turn this round.

With cyber fraud estimated to cost US businesses $108bn a year, Mr Cassin said Experian was also benefiting from advising retailers in the aftermath of data breaches where customer data have been compromised – a key growth market with the rise of ecommerce.

Another growth area is healthcare data. Passport, the US healthcare business which is used by hospitals to manage complex healthcare provider payments, saw a 20 per cent revenue boost on a pro forma basis. Experian acquired the business in an $850m deal a year ago.

Total revenue growth was up 5 per cent to $2.4bn on a constant currency basis in the six months to September 30, and pre-tax profits rose 11.5 per cent to $534m.

Operating cash flow growth in the first half was an impressive 17 per cent, meaning Experian has been able to deleverage more quickly than expected, with net debt now reduced to $3.7bn. It declared an interim dividend of 12.25 cents per ordinary share, up 7 per cent on the year before.

Robin Speakman, analyst at Shore Capital, estimated this could be as much as $800m. “Experian’s financial efficiency metrics suggest significant surplus capital emerging in the next financial year to March 2016,” he said. “We expect this capital to be used potentially in a limited number of new organic investment projects, potentially in some bolt-on acquisition activity, but more materially to restart a share buyback programme, thus potentially boosting future EPS levels.”

By mid-afternoon in London, Experian shares were up nearly 6.5 per cent at £10.01.