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Measured over any timeframe, the Relx (LSE: REL) share value has lived as much as its status for being a progress inventory. Driving the momentum over the previous couple of years has been its rising AI choices. However I’m beginning to see some potential chinks within the armour that might derail its rise.
Diversified enterprise mannequin
Relx is an data and knowledge powerhouse. Nearly each data sector of the financial system depends on its analytics and decision-making instruments. This contains authorities, legislation, academia, science, and insurance coverage. The determine under highlights the sheer variety of its income streams is highlighted.
Supply: Relx presentation
One space that has seen large progress is its authorized providing. Lexis+AI helps attorneys automate their workflows.
The enterprise has a definite aggressive benefit right here. Its databases host over 161bn authorized paperwork and its AI mannequin is again checked in opposition to the authorized quotation service, Shephard’s. This ensures that its content material stays correct and updated, a given for any lawyer.
Scientific journals
One other space that’s seen explosive progress is within the Scientific, Technical and Medical (STM) division. Main tutorial analysis and publications has seen unimaginable quantity progress. In FY24, the variety of articles submitted throughout the portfolio grew by over 20%, and the variety of articles revealed was up 15%.
The sheer quantity of revealed article progress since Covid has not gone unnoticed within the tutorial neighborhood, although. Many are starting to query whether or not quantity is extra essential than high quality. The difficulty of scientific or analysis fraud has shot up the agenda.
Scientific fraud
Final December practically each member of the editorial board of the pre-eminent Journal of Human Evolution resigned from Elseiver, the corporate’s publishing arm. They cited a dramatic downturn in high quality as the primary cause.
One thing is clearly afoot right here. In a current open letter, a gaggle of scientists accused Springer Nature of failing to “protect…scientific literature from fraudulent and low quality” analysis.
So what?, you may say. Why does this matter to an organization with a market cap of £70bn, one of many largest within the FTSE 100?
Evolving subscription mannequin
The standard cost mannequin for tutorial output includes establishments (similar to universities) paying a flat payment for a bundle of journals. Nevertheless, this mannequin is being quickly supplanted by open entry fashions.
The outline ‘open access’ is one thing of a misnomer. What the trade calls ‘processing charges’ have change into normal. A fast take a look at Open Entry Oxford quotes anyplace as a lot as £10,000 per paper. Though Relx doesn’t report on such charges, estimates are that they had been $583m in 2023.
My worry is that the complete enterprise mannequin propping up an enormous slice of the corporate’s revenues is solely not sustainable. A mannequin based mostly purely on article quantity will inevitably result in a dilution of high quality.
All this issues to an organization with some very wealthy valuation metrics. Its trailing price-to-earnings ratio at the moment stands at 37; price-to-book is 20. The inventory is priced for perfection. Its share value might be clobbered if progress slows.
For me, I see little margin of security right here, and due to this fact I’m staying properly clear for now.
