Thomson Reuters Corp (TSX: TRI) is a leading provider of business information services. Its product portfolio includes highly specialized information-enabled software and tools for legal, tax, accounting, and compliance professionals combined with the world's most global news service – Reuters.

Key highlights

• Transforming into an innovator and builder of products: The company's product strategy has been developed to drive higher revenue growth through product innovation and new initiatives. The company is streamlining its portfolio and focusing on a smaller number of larger growth prospects. It is also integrating products into end-to-end customer solutions to increase cross-sell and up-sell potential.
• Stellar performance from the core segments: The company has placed its Legal Professionals segment, Corporates segment, and Tax & Accounting Professionals segment under the name of “Big 3” and these segments, collectively comprised 80% of the total revenues, which reported organic revenue growth of 6%. The group witnessed elevated revenues and margins in the Big 3 segment in FY 2021, compared to FY 2020, which is a significant plus.

Source: Company Presentation

• Forecasted robust growth and margins: The company's performance in the fiscal year 2021 has boosted management's confidence, and they recently emphasized the strong predicted figures on several fronts, which is a critical plus. The company plans to increase revenue by 5% in FY 2022, with the Big 3 segments increasing revenue by 6% to 6.5%. The adjusted EBITDA margin will be 35%, with USD 1.3 billion in free cash flow. Furthermore, the business aims to maintain a similar performance in FY 2023.

Source: Company Presentation

• A consistent generator of Free cash flow: The resilience of the business helped the group in posting spirited performance. The company has witnessed consistent free cash flows, which is applaudable. In FY 2021, the company generated a net free cash flow of USD 1,256 million against USD 1,330 million in the previous corresponding period. Although this free cash flow was lower than in the prior similar period, these figures remain substantial given the global turbulence.

• Long History of Returning Cash to Shareholders:Despite the challenging circumstances, the corporation continued to pay dividends, proving its financial strength. It has boosted its annualized dividend by 10% to USD 1.78 per common share in FY 2022, marking the 29th consecutive year of annual dividend increases. In addition, common shareholders of record on February 24, 2022, will receive a quarterly dividend of USD 0.445 per share on March 15, 2022.

Source: Company Presentation

• Industry Beating Margins: In Q4 FY21, the company's robust determination and business resilience helped them leapfrog the industry median margins on numerous fronts, implying that the company has a competitive advantage over its peers, which is a key positive. This is depicted in the graph below.

Source: REFINITIV, Analysis by Kalkine  

Risks associated with investment: The company is significantly reliant on its own and third-party data centers, network infrastructure, telecommunications, and the Internet, and any failures or disruptions could jeopardize its ability to service customers, as well as its revenues and reputation. Furthermore, it must keep up with rapid technological changes to supply new products, services, apps, and features to suit the expectations of customers; failure to do so could have a significant negative influence on the firm. 

Financial Overview of FY 2021 (Expressed in Millions of U.S. dollar)

Source: Company Filing 

• Growing revenue: The company’s full-year reported revenues were up 6% and organic revenues were up 5%, to USD 6,348 million compared to USD 5,984 million in the previous corresponding period, thanks to strong results from the Big 3 businesses in Reuters.
  

• Operating profit in the reported period fell to USD 1,242 million against USD 1,929 million in pcp. The decline in the operating profit was mainly due to higher operating expenses witnessed by the group in FY 2021.
  

• Boosted earnings from continuing operations: The company witnessed robust earnings from continuing operating in FY 2021, which stood at USD 5,687 million compared to USD 1,149 million in the previous corresponding period. The rise was mainly due to post-tax earnings in equity investments, which stood at USD 6,240 million.

• Elevated net income: Primarily due to higher revenue and robust earnings in equity investments, the company’s net income in the reported period increased to USD 5,689 million against USD 1,122 million in pcp.
  

Top-10 Shareholders

The top 10 shareholders have been highlighted in the table, which forms around 79.11% of the total shareholding. Woodbridge Co., Ltd. and Jarislowsky Fraser, Ltd. hold the company's maximum interests at 67.00%  and 1.63% respectively. The company's institutional ownership stood at 26.15%, and ownership of the strategic entities stood at 67.72%.

Valuation Methodology (Illustrative): Price to Cash Flow based Valuation Metrics 

Stock recommendation

The company's momentum from the first nine months of the year carried over into the fourth quarter. Its revenue growth was excellent once again, exceeding management's forecasts and allowing it to finish the year on a strong note. As the performance has gained traction, boosting confidence the business has started working toward the higher 2022 and 2023 targets, which is a key positive. Customers throughout the world are upgrading Legal, Tax and Risk, Fraud, and Compliance products, which is helping the professional markets expand.

The products are proving to be well-suited to enabling them to efficiently serve their clients, which we believe will improve the company's cash flow in the near future. Furthermore, the business intends to invest in items that drive quicker growth and in which it has a strong position in emerging countries. Additionally, the company continues to hunt for selected acquisitions to supplement organic development and strengthen its position, which is a critical positive. Therefore, based on the above rationales and valuation, we recommend a “Buy” rating at the current price of CAD 131.36 at 09:56 A.M Toronto time on February 10, 2022.

One-Year Technical Price Chart (as on February 10, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Analysis Summary

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.