Deutsche Bank upgrades Relx as selloff creates buying opportunity

Relx, formerly Reed Elsevier, got a boost on Friday as Deutsche Bank bumped the stock up to 'buy' from 'hold' and hiked the price target to 1,750p from 1,630p, saying the share price correction has created an opportunity.

DB argued that the recent selloff, which has seen the shares drop 17% from their peak, represents an attractive entry point.

It attributed the share price decline to a rotation out of bond proxies, adverse currency moves, a number of broker downgrades and worries around the scientific information division. However, it reckoned these concerns have hit the stock too hard, giving investors a chance to buy into a high quality, cash generative and subscription driven business.

"Relx is a steadily compounding stock, with circa 4% organic top line growth, mid-single digit operating profit growth and high single digit earnings per share (at constant FX). We think the valuation is now back in attractive territory following 12 months when multiples had become too rich for our tastes."

According to Deutsche's ranking of information provider quality, Relx is the highest in its coverage universe, with a score of 7.3x out of 10. "It has a stable, highly diversified customer base, selling critical information primarily into the scientific, legal and insurance markets. Revenues are highly predictable and cash generation strong."

Risks to the bank's view include cuts to academic budgets, declining auto insurance volumes and falling corporate spend on trade shows.

At 1530 GMT, the shares were up 1.1% to 1,489.97p.