Australia | Jun 10 2015
-Double digit growth expected
-Regulatory changes supportive
-Final dividend expected
By Eva Brocklehurst
Recent share price weakness in Veda Group ((VED)) has captured the attention of Moelis and the broker upgrades to a Buy rating. The resilience of the company’s business is considered an attractive feature in the current weakening Australian economy.
Around 80% of the company’s sales revenue involves “clicks” on credit analytics. There is no listed domestic comparables in the Australian market as Veda is the largest aggregator of credit data on consumers and businesses in Australasia. The company trades in line with the average for Australian information services companies and Moelis notes it also trades in line with international credit bureaux such as Experian and Equifax.
Veda has guided to double digit FY15 earnings growth. Moelis estimates around 12% growth in earnings and 15% in profit in FY15. The broker’s upbeat expectations are based on new product rollout, such as Veda Visual Check, which enables customers to use a single visual workspace for credit checks and searches. There are also likely to be increased volumes of credit information required as a result of regulatory changes. Examples include mandatory due diligence requirements for over 14,000 reporting entities in Australia from January 2016.
The broker’s target is $2.46, and a total return of 18% is forecast for investors over the next 12 month, comprised of a 15% capital appreciation and 3.0% dividend yield. No interim dividend was declared in the first half, which puzzled some brokers at the time. Management has guided to a 50-70% pay-out ratio and has stated it will pay a final dividend. Moelis suspects management may be conserving cash for acquisitions or organic growth opportunities. The company undertook a number of small acquisitions in the first half.
Downside risks in the broker’s view centre on data access and security. Changes to access terms may affect availability and value of the services. Security of the database is also critical and to this end Veda has invested heavily in IT infrastructure and security. Veda Group has some joint venture interests in Asia and the Middle East. Moelis notes some customer contracts have change-of-control terms, which may be triggered by a future sell down by Pacific Equity Partners.
Moelis is not represented, but FNArena’s database contains three Buy ratings and one Hold for Veda Group. The consensus target is $2.52, which suggests 13.3% upside to the last share price. Targets range from $2.27 to $2.66.
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