Experian drops on Deutsche Bank downgrade

Credit checking agency Experian was under the cosh on Friday as Deutsche Bank downgraded the stock to 'sell' from 'hold' and cut the price target to 1,460p from 1,560p.

It said that while the company delivered solid full-year results, there is increasing risk to the US credit services outlook from slower employment growth and a lower rate of growth in this division will leave Experian with much less room for manoeuvre on its investment programme.

"We believe the current valuation does not factor in likely slowing US employment growth, consumer deleveraging and structural pressure on the consumer services divisional margin."

DB noted that Experian trades at an all-time high forward 12-month price-to-earnings multiple despite a worsening outlook for top line growth and margin. It added that

"Operational gearing in this business has allowed them to invest for growth. The current P/E does not reflect this growth risk. At the same time we believe the margin in Consumer Services will come under pressure from competition, a reversal of the marketing budget cuts in 17e and the transition away from a subscription business model."

Upside risks to the bank's negative stance include better GDP growth and greater consumer leverage than it forecast, especially in the US, UK & Brazil, margin upside from mix benefits, lower, operational gearing and productivity measures and higher organic growth from new product launches. Lower US corporate tax rates and M&A are also sources of upside risk.

At 0950 BST, the shares were down 2% to 1,613p.