Macquarie downgrades RELX to 'underperform'

Anglo-Dutch publisher RELX Group, formerly known as Reed Elsevier, was under the cosh on Wednesday after Macquarie downgraded the stock to ‘underperform’

The bank said it was difficult to improve operating performance further and the stock is already trading at a 20%-30% premium to its closest peers.

“We argue it is time for a transformational deal, but that will likely raise RELX’s risk profile,” it said.

It pointed out that RELX’s underlying bottom line growth is slowing. The 8% adjusted earnings per share growth achieved since 2010 relied on a three percentage point contribution from margin improvement, which is not in the cards anymore, the bank said.

“We forecast an increase to £800-900m buyback in 2017-2020 (was £500m in 2015 and £700m in 2016E), but that leaves no room for error, while the valuation looks full, especially for the UK line.”

Macquarie recommended switching to outperform-rated Wolters Kluwer, which it said was under-priced in the short term.

“Among professional publishers, our top pick is Wolters Kluwer, which offers better progression on organic revenue growth and more room for margin improvement, at more than 20% lower multiple.”

At 1010 BST, RELX shares were down 1.3% to 1,449p.