It takes a thick skin to operate in credit data, and Experian PLC (LSE:EXPN) seems to have grown one.
The credit bureau’s shares have been a little twitchy of late, thanks to a flare-up of worries about subprime borrowers and a public spat with long-time partner FICO.
But Deutsche Bank thinks investors are overreacting... and that the company could be heading for an upgrade rather than a downgrade.
The immediate concern has been the rise in defaults among subprime car loans in the US, which some feared could mark the start of a broader consumer credit wobble.
Instead, recent third-quarter updates from banks and card issuers paint a much calmer picture. Delinquencies are easing across the board, and lenders are sounding increasingly confident that the worst has passed.
That matters for Experian because its business depends on the volume and quality of lending activity. When lenders are cautious, data usage drops.
But when confidence improves, so does demand for credit checks, analytics and marketing tools. The first quarter already saw growth at the top end of the company’s full-year target range, and Deutsche believes the improving backdrop means guidance could be nudged higher at the half-year stage.
The other worry has been Experian’s spat with FICO, the US credit scoring group. The two are key partners in consumer lending data, but their recent disagreement over pricing and access to data has prompted some investors to fear a lasting split.
Deutsche is relaxed about that. US mortgage data, where the two overlap most, makes up just 3% of Experian’s revenue. More importantly, the relationship looks “co-dependent”, with both sides needing each other’s data and distribution to serve banks effectively.
At 3,550p, the shares have rallied strongly this year but still trade at a discount to Deutsche’s new target of 4,550p.
The bank keeps its “buy” rating, arguing that Experian’s exposure to improving credit conditions and its limited reliance on any single segment make it a sturdy way to play the next phase of the US consumer recovery.