Should I Invest in Experian?

LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.

To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.

Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators, and buy at prices that offer decent value.

So this series aims to identify appealing FTSE 100 investment opportunities, and today I'm looking at Experian  (LSE: EXPN  ) , which is a business services company operating in the areas of credit, decision, marketing, and interactive services and solutions.

With the shares at 1,083 pence, Experian's market cap. is 11,000 million pounds.

This table summarizes the firm's recent financial record:

Year to March

2008

2009

2010

2011

2012

Revenue ($million)

3,789

3,873

3,880

3,885

4,487

Net cash from operations ($million)

960

963

1,063

1,192

1,378

Adjusted earnings per share (cents)

57.5

62.3

63.7

66.9

78.9

Dividend per share (cents)

18.5

20

23

28

32

The shares of Experian have been performing well, driven by an underlying business that continues to grow. In a recent update, the directors reported good recent trading, and said that they expect high single-digit revenue growth, and modest margin improvement going forward.

The firm is an information services company, providing data and analytical tools to clients around the world, and employs 17,000 people in more than 44 countries. In the U.K., it's probably best known for its credit checking service. Around 47% of revenues come from North America, 20% from Brazil, 18% from the U.K., and the remaining 15% comes from other countries.

Experian has grown both organically and by acquisition, and its Credit Services division is currently the biggest contributor to the company's revenues, delivering about 47% last year. Marketing Services contributed 21%, Consumer Services, 21%, and Decision Analytics 11%.

The Experian growth story seems unstoppable, and the valuation recognises that. Nevertheless, if growth continues, the potential total-return for investors could still be decent from here.

Experian's total-return potential
Let's examine five indicators to help judge the quality of the company's total-return potential:

1. Dividend cover: Adjusted earnings covered the last dividend almost 2.5 times. 4/5

2. Borrowings: Net gearing around 80%; net borrowings just under three times earnings. 3/5

3. Growth: Growing revenue and earnings with robust support from growing cash flow. 5/5

4. Price to earnings: A forward 17.5 looks well up with growth and yield expectations. 2/5

5. Outlook: Good recent trading and a positive outlook. 5/5

Overall, I score Experian 19 out of 25, which encourages me to believe the firm has potential to outpace the wider market's total return going forward.

Foolish summary
Decent dividend cover and under-control debt sit well with the company's robust cash flow performance. Growth has been steady, and the outlook is positive. Such attractions seem to be recognized in the valuation, which, on balance, encourages me to believe that, yes, I should invest in Experian; but I would prefer to see some share price weakness before doing so.

However, one of the Fool's top investment writers has uncovered a share that looks like a very attractive situation. He has put his money where his mouth is by investing, and believes the share is the "Motley Fools Top Growth Share for 2013". In this new Fool report, you can discover how the firm has reinvisioned itself to allow for tremendous growth along new horizons. Right now, the report is free to download and tells you exactly why our expert has invested in, and expects strong growth from, this changing company with a strong pedigree. To get your copy, click here.

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