THOMSON REUTERS CORP. $34 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 829.7 million; Market cap: $28.2 billion; Price-to-sales ratio: 2.0; Dividend yield: 3.5%; SI Rating: Above Average) has two main divisions: Markets accounts for 60% of revenue, and sells financial-information products to banks and other financial institutions. Professional (40% of revenue) sells specialized information to professionals in the legal, accounting, scientific and health-care fields. The company gets about 60% of its revenue from the Americas, followed by Europe (30%) and Asia (10%).
The financial crisis prompted banks and brokerage firms to cut spending on information products. As a result, Thomson Reuters’ revenue fell 3.7% in the third quarter of 2009, to $3.2 billion from $3.3 billion a year earlier (all amounts except share price and market cap in U.S. dollars). Earnings fell 8.5%, to $0.43 a share (or a total of $359 million), from $0.47 a share (or $392 million).
Thomson is taking advantage of the slump in the financial industry to expand its operations. For example, it will pay an undisclosed sum for breakingviews.com, a privately held web site that supplies financial news and commentary.
Breakingviews’ main clients are in the banking, wealth-management and legal professions. The site mainly sells its information through online subscriptions. It also sells its articles to major newspapers and magazines.
The company has also done a good job of cutting its costs since it merged with the U.K.-based Reuters news agency nearly two years ago. It has already lowered its yearly expenses by $975 million, and should easily reach its target of $1.4 billion in annual savings by the end of 2011.
The shares trade at 16.6 times the $1.94 U.S. a share that Thomson should earn this year. That’s a reasonable p/e ratio when you consider that Thomson’s highly specialized information products face little competition from free news on Internet. As well, bankers and portfolio managers rely on this information to run their businesses, so demand should rebound with the economy.
Thomson is a buy.
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