RELX Faces 12% Decline: Is It Time to Buy for Your SIPP?

The share price of RELX (LSE: REL), a leading information and analytics group, fell by approximately 12% in August, raising questions about its attractiveness as an investment for the Self-Invested Personal Pension (SIPP) market. This decline has created an opportunity for investors looking to acquire shares at a lower valuation. The company, which operates in over 180 countries, specializes in subscription-based data and decision tools for businesses.

Despite the recent downturn, RELX has shown strong performance over the past five years, with its share price more than doubling, rising by 102%. The company also consistently provides dividends, which further enhance its appeal to long-term investors. However, last month’s drop of 11.69% has left the stock approximately 3.7% lower than it was a year ago.

Strong Financial Results Contrast with Stock Decline

The August slump followed RELX’s half-year financial results released on July 24, 2023. The report indicated a 7% increase in revenue, reaching £4.74 billion, and a 9% rise in adjusted operating profit to £1.65 billion. The company also announced a 7% increase in its interim dividend, now set at 19.5p. These results suggest that the market reaction was not entirely justified, as there were no alarming indicators within the financial update.

The decline in share price may be attributed to high expectations leading into the announcement. At the beginning of August, RELX was trading at a price-to-earnings ratio of around 32, leaving little margin for error. The recent drop has adjusted this ratio to 28.7, making it somewhat more appealing, though still not particularly cheap by historical standards.

Potential Risks and Dividend Growth

Investors should consider several risks associated with RELX. One key factor is the impact of artificial intelligence (AI) on the company’s operations. Initially, there were concerns that AI could enable clients to replicate RELX’s services internally. However, recent discussions suggest that AI might actually enhance the company’s offerings. It remains to be seen how this evolving landscape will impact investor sentiment.

Additional risks include the cyclical nature of corporate spending, which may slow if businesses tighten budgets in response to persistent inflation and high interest rates. Regulatory scrutiny over data usage also poses a potential threat. With a market capitalization of £62 billion, the size of RELX may limit its ability to maintain rapid growth.

Despite these risks, RELX remains an attractive option for long-term investors, particularly due to its consistent dividend growth. The trailing yield of 1.84% may appear modest, but the company has maintained annual dividend increases every year this century, except for one hold in 2010. Over the past 15 years, dividends have compounded at an impressive rate of 7.95% annually, outpacing inflation.

For investors with a long-term perspective, RELX presents a high-quality business with reliable recurring revenues and a solid track record of dividend growth. As a result, many investors are considering building positions in their SIPPs.

In conclusion, RELX’s recent decline offers a potential buying opportunity for those looking to invest in a strong company that has weathered various market conditions. While there are risks to consider, the combination of growth potential and dividend reliability makes it a compelling choice for both new and seasoned investors.