THOMSON REUTERS CORP. $40 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 827.2 million; Market cap: $33.1 billion; Price-to-sales ratio: 2.5; Dividend yield: 3.4%; TSINetwork Rating: Above Average; www.thomsonreuters.com) gets 55% of its revenue by selling news and information to professionals in the banking industry. The remaining 45% comes from providing specialized information products to clients in the legal, accounting and scientific research fields.
Big merger boosted revenue
Thanks to its merger with the Reuters news agency in 2008, the combined company’s revenue rose 17.9%, from $11.7 billion in 2008 to $13.8 billion in 2011 (all amounts except share price and market cap in U.S. dollars). Thomson continues to sell some of its slower-growing businesses. As a result, its revenue slipped to $13.3 billion in 2012.
Many banks cut their spending on information products in the wake of the 2008 financial crisis. In response, Thomson restructured its Financial & Risk division while it was integrating Reuters. Exclude one-time items, its earnings improved from $1.5 billion in 2008 to $1.6 billion in 2009. Due to more shares outstanding, earnings per share fell from $1.89 to $1.85.
Earnings then declined to $1.75 a share (or a total of $1.5 billion) in 2010 but rose to $2.12 a share (or $1.8 billion) in 2012, as Thomson started to realize the savings from its restructuring.
The company now plans to cut a further 5% of its workforce. Severance and other payments will total $350 million. However, the savings will help the company repurchase $1 billion of its shares by the end of 2014 and contribute $500 million to its employees’ pension plans.
Putting savings to good use
Thomson’s lower operating costs are also freeing up cash that it can invest in new products. These include its Eikon desktop computer terminals, which deliver news and financial data to traders and portfolio managers. The company has now installed over 100,000 Eikon terminals, including 39,000 since June 30, 2013.
At the same time, Thomson is using acquisitions to fuel its growth, mainly buying smaller firms that enhance its operations. For instance, it recently bought T.Global, a Brazilian company whose software helps businesses comply with complex tax and tariff regulations. Thomson plans to adapt T.Global’s products for other countries.
Unique advantages justify p/e ratio
Thomson has gained 44% in the past year and now trades at a somewhat high 20.8 times its projected 2013 earnings of $1.85 a share. However, that’s still reasonable, as Thomson dominates many of the niche markets it operates in. As well, it gets 90% of its revenue from recurring subscriptions, so it has little exposure to cyclical advertising.
The company also has a long history of raising its dividend. The current rate of $1.30 yields 3.4%.
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