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's Legal Professionals segment, Corporates segment, and Tax & Accounting Professionals segment are together known as the "Big 3," and these divisions accounted for 80% of total sales, with organic revenue growth of 6%. In comparison to FY 2020, the group saw higher sales and margins in the Big 3 category in FY 2021, which is a big gain.

Source: Company Presentation 

• Forecasted robust growth and margins: The company's performance in FY 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.

• 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's capacity to service clients, as well as its profits and reputation, is heavily reliant on its own and third-party data centers, network infrastructure, telecommunications, and the Internet. Any faults or outages might threaten this ability. It must also keep up with rapid technological advancements in order to provide new products, services, applications, and features that meet client expectations; failing to do so might have a substantial negative impact on the company. 

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

Source: Company Filing 

• 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 pcp, 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 was mainly due to higher operating expenses witnessed by the group in FY 2021.

• 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 pcp. The rise was mainly due to post-tax earnings in equity investments, which stood at USD 6,240 million.

• 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.

Valuation Methodology (Illustrative): Price to Cash Flow based

Analysis by Kalkine Group 

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. Furthermore, the business intends to invest in items that drive quicker growth and in which it has a strong position in emerging countries.

Therefore, based on the above rationales and valuation, we recommend a “Buy” rating at the closing price of CAD 128.16 on February 28, 2022. Moreover, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on February 28, 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.