Thomson Reuters – Connecting the Financial Data World

Thomson Reuters is a leading global source of data and information for professional markets. It was formed as a result of a merger between Thomson Corporation and Reuters in 2008. 

Thomson Reuters caters to the needs of its clients operating in law, tax, compliance, government, and media industries. The company is trusted by its clients for integrity and accuracy of the information, given its 100 year’s experience. 

The U.S. is Thomson Reuters’ major operating area accounting for 79% of its revenues, followed by EMEA (11%), Other Americas (6%), and APAC (4%) regions. The company has operations in more than 100 countries and enjoys #1 or #2 market share positions in most of the segments that it serves. 

Thomson Reuters has three major customer segments, Legal Professionals (42% of revenue), Corporates (23%), and Tax & Accounting Professionals (14%) collectively known as the Big3; Reuters News (11%) and Global Print (10%) are the other two. The company also has an ownership stake in the London Stock Exchange Group.

TRI is also available as a dual listed stock trading under TRI on the NYSE.

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Revenue Growth & Market Exposure

Thomson Reuters derives a majority of its revenues from selling electronic content and services to professionals, primarily on a subscription basis. Thomson Reuters has a huge base of ~500,000 customers and has a good opportunity to grow by cross-selling and up-selling to existing clients.

The company is known for offering best-in-class products and services and enjoys ~90% retention rates. Sticky customer relations and authenticity of information are Thomson Reuters’ biggest competitive advantages. The company is recognized worldwide for providing critical news, information, and analytics in a timely manner. It has the opportunity to better serve the customers and access new customer groups.

As the world’s leading source of news and information for professional markets, Thomson Reuters has developed a deep and broad industry knowledge and products and services tailored for professional needs. Given its strong reputation and high customer dependence, the company is favorably placed for winning annual price hikes. Thomson Reuters reported organic revenue growth of 2% and Big3 segment revenues increased by 4% in the last quarter of FY2020. Recurring revenues increased by 5% and comprised 80% of total revenues. 

The company also announced a two-year Change Program that will transition it from a holding company to an operating company and from a content provider to a content-driven technology company. The Change Program will drive both growth and efficiencies and is estimated to generate additional annual revenues of $100 million and annual operating expense savings of $600 million in 2023. It is targeting organic revenue growth of 5%-6% in 2023 and Big3 revenue growth of 4.5%-5.5% in 2021.

Dividends

Thomson Reuters is a Canadian Dividend Aristocrat and a Dividend Achiever with more than 25 years of straight dividend increases supported by strong and consistent cash generation capabilities. It currently has a 1.7% yield and a payout ratio of 70%. The company last raised its payout by more than 12%, representing the 28th consecutive year of dividend increases.

It also registered a 10-year CAGR of 2.5%. Thomson Reuters recently completed the repurchase of $200 million of its common shares under its NCIB, which began in January 2021.

Thomson Reuters operates in large global market segments with significant growth potential. The company is well-positioned to gain from growing Legal, Tax & Accounting, and Government businesses operating in healthy and evolving markets. Thomson Reuters’ potential market segment is ~$47 billion growing at 7% – 9% (5-year CAGR).

The company should continue to benefit from growing future demand, cost control measures, and a client-centric approach. Thomson Reuters is looking to reduce Capex to 6% – 6.5% of revenues in 2023 and also driving operational efficiencies. Refinitiv (its former Financial & Risk business) achieved its targeted run-rate cost savings of $650 million as of December end, 2020.

Thomson Reuters is targeting a dividend payout ratio of 50%-60% and a free cash flow of $1.8 billion – $2 billion in 2023 and $1 billion – $1.1 billion in 2021. Ownership and maintenance of extensive proprietary databases and enterprise solutions form a deep moat around Thomson Reuters’ business.

Thompson Reuters (TRI) historical Yield
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Competition

Thomson Reuters operates in highly competitive markets. It is the leader in each market where it operates. Rapid technological changes and evolving customer demands continue to pose challenges for the company. It competes with a wide range of large and specialist providers like Bloomberg, FactSet, S&P Global, Dow Jones, and large IT vendors, such as IBM.

In the professional software and services market segment, Thomson Reuters competes with the likes of Intuit and Sage and Tyler Technologies in the government software segment. In addition, the company competes with other providers of software and services and ERP vendors.

Bottom Line

Thomson Reuters should continue to drive growth given its efforts towards improving customer and digital experiences and simplifying the organization. The company enjoys a healthy business model based on subscriptions and recurring revenues.

COVID-19 has changed how professionals work today, and the demand for trusted, authoritative content with unique data, AI/machine learning, and software will only increase more than ever. Thomson Reuters’ businesses are well-positioned for a post-COVID world. A streamlined operating company should further drive strong performance and value for shareholders.

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Thompson Reuters (TRI) historical PE
Thompson Reuters (TRI) historical Yield

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DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.