How Does Thomson Reuters Compare With Its Peers?
Thomson Reuters (NYSE: TRI) is undergoing a transformation. In January 2018, the company announced that it has entered into an agreement to sell a 55% stake in its Financial and Risk (F&R) division (the segment accounting for more than 50% of its revenues) in order to focus on other segments and accelerate growth. This transaction is likely to be completed by the end of 2018 and will make the company a leaner organization with lower debt and avenues for faster revenue growth. In this note, we compare Thomson Reuters with its peers S&P Global and Moody’s on key metrics, and analyze how the company will look after the F&R divestiture. You can access these comparative charts in our interactive dashboard on how Thomson Reuters compares to its peers.
Revenue Growth
While S&P Global and Moody’s have been able to grow their revenues steadily in the past few years, Thomson Reuters has been facing revenue declines. Thomson Reuters’ revenues were twice those of S&P and Moody’s before it divested its F&R division, but the F&R division was relatively stagnant, leading to negative revenue growth. It is important to note that Thomson Reuters’ total revenues in 2017 were around $11.3 billion (including the F&R division), while S&P Global generated around $6 billion in revenues for the same period. Moody’s revenues stood at approximately $4 billion in 2017.
In 2018, after the divestiture of the F&R division, we estimate that Thomson Reuters’ total revenues will be around $5 billion – similar to those of its peers. However, we do not expect the company to grow revenues in the 8-10% range in the next few years. For more details on Thomson Reuters’ revenue growth you can see our dashboard : Analyzing Revenue Growth For Thomson Reuters.
EBITDA (Earnings Before Interest, Tax, Depreciation And Amortization) Margin :
Thomson Reuters’ EBITDA margin has remained lower than its peers as well. An aggressive competitive environment has negatively impacted the company’s profitability. With a high proportion of fixed operating costs, margins are adversely impacted due to slow revenue growth. The F&R division had been experiencing delays in closing new sales opportunities in Europe and Asia, which – coupled with an intense competitive environment in other regions – contributed to lower profitability. With the divestiture of the F&R division, the company is likely to see an improvement in margins going forward.
Capital Expenditures
Thomson Reuters’ capital expenditures have been around 8-9% of revenues, while the comparative number for its peers is 2-3%.
Thomson Reuters has several legacy products, and the company has been investing heavily in technology to upgrade these products and support them. After the divestiture of the F&R division, the company’s capital expenditures are likely to decline, as most of the legacy products across disparate systems reside in this division. A less capital-intensive business is likely to generate higher returns for the company.
Price To Earnings Multiple
In 2017, Thomson Reuters commanded a Price to Earnings (PE) multiple of 22x, compared to around 29x for S&P Global and Moody’s, indicating that market expectations of its future growth were lower compared to its peers.
For 2019, we estimate this multiple to be around 25x. For details around how the PE multiple impacts the valuation of Thomson Reuters, you can look at our interactive dashboard Estimating The Valuation Of Thomson Reuters.
With its recent divestiture, Thomson Reuters will become a smaller, more focused business. This should allow the company to target specific opportunities and drive significant growth for its existing segments. Selling a majority stake in this division and using part of the proceeds to fuel growth in other segments certainly appears to be a step in the right direction.
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