Some Cracks, but the Foundations Remain Strong for Narrow-Moat Wolters Kluwer

Further to its pre-release a couple of weeks ago, narrow-moat Wolters Kluwer updated the market on May 6 with some finer detail around its first-quarter update and more recent trading. Having reported a relatively unaffected first quarter, with organic revenue growth of 4%, all eyes were on the run rate. Long story short, although the company is faring well, with its recurring revenue stream (82% of revenue in the first quarter) motoring-on almost unrelentingly through the crisis, transactional revenue--and in particular print-based products--are taking the brunt of the impact. So, while the bulk of the business is doing fine, there will undoubtedly be a drag from peripheral areas over the coming quarter. As such, we are again tweaking our near-term forecasts to reflect this, with our expectation now of just under 2% organic revenue growth for the full year, down from 4.3% in 2019. Additionally, we believe operating margins will take a minor impact, declining by around 30 basis points year over year. We reiterate our EUR 53 fair value estimate and believe that given the strong recovery in the share price over the last month, their valuation now looks rich.