The progress of companies in the information industry will be determined by how well they master rapid technological change.
This stock has aggressively cut costs, shifted to digital delivery and improved its productivity. It recently sold off a majority share in one of its segments, which will add a steady flow of cash to invest in its operations.
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THOMSON REUTERS CORP. (Toronto symbol TRI; www.thomsonreuters.com) sells information products to financial clients such as banks and brokerages. The company also sells specialized information to professionals in the legal and accounting fields. In addition, it owns the Reuters news service.
Thomson Reuters recently agreed to sell 55% of its Financial & Risk (F&R) business to a group led by Blackstone Group LP (New York symbol BX).
This Thomson business sells specialized information products to financial clients such as banks and brokerages. In the final quarter before the deal was announced, Financial & Risk contributed 55% of the company’s total revenue and 58% of its earnings.
In exchange for that 55% stake, Thomson will receive $17 billion—$3 billion in cash and $14 billion in notes and preferred shares (all amounts in U.S. dollars). In addition, the company’s Reuters news service will continue to supply content to the F&R business. Under the terms of the contract, Thomson will receive $235 million a year for the next 30 years.
To put those figures in context, Thomson has a market cap (the total value of all outstanding shares) of $35.6 billion (Canadian). It expects to complete the transaction by the end of 2018.
The company will use the proceeds of the sale to pay down its long-term debt of $5.6 billion U.S. (as of December 31, 2017). That’s equal to a moderate 16% of its market cap. Overall, Thomson can comfortably afford to invest in its operations. As of December 31, 2017, the company held $972.0 million in cash. It is also likely to use some of the money from the Blackstone deal to help expand its legal and tax information businesses and to buy back shares.
Blue Chip Stocks: $100 million earmarked for new technology centre in Toronto
In the past few years, the company has sold many of its less-important businesses. That lets it focus on more promising products. Since 2012, Thomson has also cut its workforce by 20%. Through improved productivity, the company has seen its gross margin increase from 25.9% in 2013 to 30.3% for 2017. (Gross margin is gross profit divided by total revenue; the higher the better.)
Those savings free up cash the company can use to improve its products, particularly as more of its clients access its data online. As part of that plan, it will spend $100 million on a new technology centre in Toronto (all amounts except share price and market cap in U.S. dollars). That facility will develop data-analytic and artificial- intelligence software for its database products.
It’s possible the company could also use some of the cash from the Blackstone deal for dividends. It last raised its quarterly dividend by 1.5% with the March 2017 payment. Investors now receive $0.345 U.S. a share.
The current annual rate of $1.38 U.S. yields 3.4%. The company’s dividend has grown an average of 1.5% annually over the last 5 years.
Earnings should improve from $2.51 a share in 2017 to $2.63 in 2018. The stock trades at a reasonable 19.1 times the 2018 forecast.
Recommendation in The Successful Investor: Thomson Reuters is a buy.
TSI has been recommending THOMSON REUTERS for some time now (I am a long time subscriber). It does pay a dividend, but the stock itself has declined significantly. I have yet to see any comments addressing why the stock has declined in value.
We continue to see Thomson Reuters as a buy for long-term gains. The company continues to adjust its operations to move away from its legacy publishing operations to high-value niche products for niche industries. That is a sound strategy and will continue to pay off for patient investors.
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TSI has been recommending THOMSON REUTERS for some time now (I am a long time subscriber). It does pay a dividend, but the stock itself has declined significantly. I have yet to see any comments addressing why the stock has declined in value.
We continue to see Thomson Reuters as a buy for long-term gains. The company continues to adjust its operations to move away from its legacy publishing operations to high-value niche products for niche industries. That is a sound strategy and will continue to pay off for patient investors.