THOMSON REUTERS CORP. (Toronto symbol TRI; 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.
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.
In 2010 earnings declined to $1.75 a share (or a total of $1.5 billion) from $1.85 a share (or $1.6 billion) in 2009. However, earnings 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.
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. The company plans to adapt T.Global’s products for other countries.
Thomson has gained 44% in the past year. It also has a long history of raising its dividend. The current rate of $1.30 yields 3.4%.
In the latest edition of The Successful Investor, we examine Thomson’s market position and its subscription revenue growth to see whether the shares are likely to keep rising and the company can keep raising its dividend. We also look at the risk inherent in growing by acquisition. We conclude with our clear buy-sell-hold advice on the stock.
(Note: If you are a current subscriber to The Successful Investor, please click here to view Pat’s recommendation in the latest issue. Be sure to log in first.)
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Once prominent in consumer media (with the Globe & Mail among others) Thomson re-made itself into a business information service and then, after its merger with Reuters, into a major news service as well. Can you think of another company that re-made itself with such apparent success? Have you owned a stock that went through a process of changing its business dramatically? Did you keep the stock while it did so? How did that work out?
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