Questions about Experian’s investment record left the credit checking agency with its sharpest fall in more than a month on Wednesday.
Since its spin-off from GUS in 2006, Experian has spent $9.2bn more on acquisitions and capital expenditure than disposals, according to Redburn Partners. Yet its growth has been similar to US rival Equifax, which has spent a third as much, the broker calculated.
Experian’s success has been built around the purchase six years ago of Serasa in Brazil, with the unit commanding a 65 per cent local market share and generating 35 per cent operating margins. But competition has been strengthening in Brazil and the territory still provides more than a fifth of group sales, in spite of Experian spending $6bn trying to grow other markets, Redburn said.
It also expressed concern that a growing availability of free information would eat into Experian’s consumer revenues, given its average customer subscribes for less than a year.
Experian’s valuation of more than 20 times 2014 earnings was “too high given underlying organic prospects are modest and return on invested capital is being held back by the high multiples paid for M&A”, Redburn concluded. It had a 900p target on the stock, which dropped 2.8 per cent to £10.71.
The wider market reversed the previous day’s rally, with the FTSE 100 ending down 0.7 per cent or 48.35 points at 6,775.42.
Melrose lost 7.8 per cent to 302.4p after its annual earnings missed expectations, in part because of the cost of staff bonuses. Like most other engineers, Melrose cautioned of poor sales growth in 2014 with currency effects a headwind.
Aerospace engineer Meggitt slid 3.9 per cent to 486.6p a day after annual results, which had been well received.
Analysts raised concerns about the quality of Meggitt’s earnings, which were bolstered by the capitalisation of costs. JPMorgan Cazenove told clients that “Meggitt’s accounting is now more aggressive than Rolls-Royce”, whose policies on booking costs such as R&D have long been a source of investor concern.
Admiral led the blue-chip risers, up 7.5 per cent to £15.26, after the car insurer provided a reassuring update on solvency levels and declared a 99.5p dividend, at the top of market expectations.
RSA Insurance rose 2 per cent to 97.8p, helped by a stakebuilding rumour and an upgrade to “neutral” from HSBC.
Soco International dropped 9.2 per cent to 422.1p after the oil explorer stalled on a cash return. Investors were disappointed that its proposed payback, equivalent to about 19p per share, was at the lower end of guidance and would be held until mid year.
Devro lost 10.7 per cent to 247.5p following Tuesday’s results from the sausage skin maker, which triggered a wave of downgrades.
“A more intense competitive environment combined with a weak volume outlook in developed markets is likely to result in operational degearing,” said Panmure, which downgraded Devro to “sell” and cut earnings forecasts by a quarter.
Playtech, the gambling software maker, fell 9.4 per cent to 737.4p after founder Teddy Sagi sold a 15.4 per cent stake at 725p apiece. Jupiter Fund Management lost 5.3 per cent to 405p after private equity group TA Associates sold an 11 per cent shareholding.