About: Experian is the world’s largest consumer credit bureau, collecting and aggregating information on over one billion people. These credit reports are used by institutions such as banks when extending credit. Experian’s data is also used to manage credit risk, mitigate fraud, automate credit decisions and generate target marketing.

Why it’s in the portfolio: Barriers to entry, in the form of data security and the IT infrastructure required to ingest and process vast quantities of data, are immense. Further, the ‘standardised’ offering means there is no economic need for more players in the industry. This has led to an oligopolistic industry structure, i.e., a market dominated by a small number of large sellers. We like this industry structure as it promotes sensible competition among players, without each trying to undercut the other on price, which only leads to diminished returns for the whole industry over time.

Experian’s competitive moat is built around a culture of continual innovation and unrivalled global reach and scale. Strategically, the management has a very clear sense of direction and is continually driving the business to get better all the time. Experian shows a long history of operational discipline and smart capital allocation, which is demonstrated in its steady growth in profitability. The business has consistently generated returns on capital of 13–14% p.a. over the last 10 years. The company has sensibly reinvested in the business, supporting GDP-plus organic sales growth and EPS growth of 5–6% p.a.

Fundamentals: EXPN has a market cap of $22b USD, a PE of 40.5x forward earnings, EPS of 1.1x forward earnings and a PEG ratio of around 2.3. The company currently has a 1.5% dividend yield and a 60.3% payout ratio. The company’s debt to assets are currently 41.1% and debt to equity is 134.0%.

What could go wrong?