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 information, given its 100 year’s experience.
Americas is Thomson Reuters’ major operating area with more than 60% of its revenues generated here, followed by 27% from EMEA, and 11% from APAC 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.
As a result of its separation of F&R segment, Thomson Reuters reorganized into a new organizational structure. The company has organized its Legal and Tax & Accounting business units into three customer segments: Legal Professionals (43% of latest revenues), Tax Professionals (15%) and Corporates (22%). Global print (15%) and Reuters News (5%) will be reported as separate segments.Investment Data
- Opportunity Score: 40
- Ticker: TSE:TRI
- Sector: Industrials
- Industry: Consulting Services
- Market Cap: 45.29B
- P/E: 39.42
- Dividend Yield: 1.78%
- Payout Ratio (Earnings): 70.23%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 3/10
- Dividend Income Fit: 6/10
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. About 75% of its revenues are derived from contractual arrangements which are generally recurring in nature. By customers, legal professionals account for 40%+ of revenues, followed by corporates (20%+) and tax professionals (10%+).
Thomson Reuters is restructuring itself into a new customer focused segment structure that is well positioned to address its clients’ needs. The company has a huge base of ~460,000 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. Thomson Reuters’ highly sticky solutions have now become a critical part of its customers’ workflow.
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 favourably placed for winning annual price hikes. The company is expecting revenues to grow in low single digit rate in 2018 and organic revenues to grow 3.5%-4.5% by 2020.
Thomson Reuters is a Canadian Dividend Aristocrat and Dividend Achiever recording 25 years of consecutive dividend increases. The company returned close to $10 billion to shareholders last year. The company also has a share buyback program in place.
Thomson Reuters currently has a 2.9% yield and is paying an annual dividend of $1.54 per share. The company last raised its payout by more than 11% registered a 10-year CAGR of 3.5%.
Since most of its revenues are on a subscription and recurring basis, the company has strong and consistent cash generation capabilities. The company is also looking at reducing costs and driving operational efficiencies. It is targeting to reduce Capex to 7%-8% of revenue in 2020.
Thomson Reuters sold 55% interest in Financial & Risk business and received $17 billion of cash proceeds by the end of the third quarter. This cash will be directed towards future growth investments, maintaining a strong capital structure and returning capital to shareholders.
Refinitiv (former Financial & Risk business of Thomson Reuters) estimates run rate cost savings up to $650 million to be achieved by end of 2020. The company has a 45% equity stake in this financial business along with a strong strategic partner, Blackstone.
Intelligent analysis and accurate data is most critical for decision making by the professionals all round the world and Thomson Reuters is well positioned to benefit from a growing demand of data and information. Ownership and maintenance of extensive proprietary databases and enterprise solutions form a deep moat around Thomson Reuters’ business.
Thomson Reuters operates in large global market segments with significant growth potential. The potential market segment size is ~$44 billion, growing at 5%-6% through multiple adjacent expansion opportunities. The company should continue to benefit from growing future demand, cost control measures and a client-centric approach. It is targeting a dividend payout ratio of 40%-50% of annual free cash flow in the future.
Thomson Reuters operates in highly competitive markets. 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.
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. Thomson Reuters has been a consistent cash generator providing modest dividend increases over time. The company should leverage from its position as Canada’s largest data company, and growing demand for data and research and continue to increase its dividends in future.