Jefferies may view information services provider Experian as a 'core support services holding', but has been prompted to downgrade its rating on the stock from 'buy' to 'hold' on valuation grounds.

Yesterday, Experian's shares rose after announced that it intends to raise its stake in Brazilian market-leading credit bureau Serasa from 70% to 99.6% for $1.5bn in cash, something which Jefferies thinks makes "both strategic sense and is financially appealing".

"Whilst the US$1.5bn consideration values Serasa at 16.2 times historical FY12 EBIT [earnings before interest and tax], as the consideration is payable in cash from Experian's existing banking facilities, we upgrade FY14F EPS [earnings per share] by 5.7% EPS, the first full year of ownership," the broker said.

Ahead of Experian's first-half results on November 8th, the broker is predicting a 13% constant-currency increase in revenues (up 9% organically), but with a 6% FX headwind year-on-year. This will reduce reported revenue growth to 7%. Meanwhile, with the tax rate rising fro 22.6% to 25% year-on-year, EPS is expected to grow by just 3%.

"In an uncertain world, with just 5% of group revenues from Eurozone economies, we continue to view Experian as a core support services holding: a clear global market leader, with a scalable business model, consistent cash flow returns & high barriers to entry offering 13.7% FY12-FY15F EPS CAGR [compound annual growth rate]," Jefferies said.

"However, post upgrades, Experian trades on FY13F PE [price-to-earnings ratio] of 20.2x & EV/EBITDA of 12.3x (within 6% of peak multiples); hence we moderate our stance from 'buy' to 'hold'."

The target price has been hiked from 1,060p to 1,200p.

BC

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