Morgan Stanley has downgraded credit checking specialist Experian PLC (LON:EXPN) to ‘equal weight’, having identified some headwinds to growth.
Specific parts of the consumer credit universe have been growing more strongly of late, with debt balances exceeding crisis peaks, the US bank notes.
On top of that, loan repayment delinquencies are increasing across a number of consumer credit products, especially in the US, despite interest rates being unprecedentedly low.
“With savings rates at historic lows and higher delinquent balances, it seems increasingly unlikely that credit growth will continue at current rates,” suggest Morgan Stanley.
The surge in credit is starting to get regulators worried, and this spells bad news for Experian as, in Morgan Stanley’s view, the performance of credit services is inversely related to tighter financial conditions.
Put another way: interest rates go down, credit check enquiries go up.
As credit services accounts for 56% of Experian’s revenues, this is a big deal for the company.
“The willingness of banks to lend is integral to growth as this stimulates the demand side through increased marketing and competitive pricing. UK and US banks are expressing a reducing desire to issue unsecured credit and auto finance,” Morgan Stanley said, as it cut its price target from 1,680p to 1,550p.