巴克莱-美股-商业与专业服务业-是时候做一些春季的清理了？-2019.4.17-43页.pdf

Equity Research 17 April 2019 FOCUS Barclays Capital Inc.and/or one of its affiliates does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 31.Restricted-Internal BIPS Time for Some Spring Cleaning?Today we look at four names where we think portfolio review of less core assets could be a positive catalyst:TRU/Healthcare;MCO/ERS;INFO/CMS;&VRSK/Argus.On conservative assumptions and in the event of a hypothetical sale,we believe these assets could be modestly dilutive to EPS at worst,but more than offset from a valuation standpoint by lowering leverage,increasing flexibility for future capital allocation and removing investor frustration points.Note:The catalyst for this report was the positive investor response to ECLs decision to spin-off Upstream Energy recently.We also touch on ARMK&Uniforms(but see no clear options);and look at precedent value-enhancing divestments:including ECL/Energy;SPGI/various;TRI/various&CTAS/Shredding.TRU&Healthcare:What used to be a strong DD growth business is now expected to be+HSD once headwinds subside.And these headwinds likely persist from ongoing hospital consolidation and complexity in U.S.healthcare systems which has created challenges for our universe in the past(think VRSK,IMS,ECL,EFX).Additionally,healthcare is the vertical least connected to TRUs core data and capabilities.We think TRU should consider monetizing healthcare while it still has an opportunity to do so;which could go a long way to de-lever and re-position TRU as a fan favorite as it works through its management transition.MCO&ERS:To us,Moodys Analytics has always felt more like a collection of assets than a cohesive business.This is most apparent in ERS(10%of revenues;below co.margins);a business that a)is software-oriented,unlike MCOs typical data/service model;b)margin dilutive;c)highly competitive;&d)has less obvious secular drivers as regulatory tailwinds subside.While we recognize the strategic imperative to diversify Ratings exposure,we think the preferred route is via RD&A/BvD data assets.While MCO will argue for better appreciation of ERS given its ongoing SaaS transition,with 75%of profits from Ratings,we see little scope for re-rating from financial investors.VRSK&Financial(Argus):While the debate on WMs fit in the portfolio alongside Insurance will continue,Financial at 5%of EBITDA and underperforming adds only noise today.We view the asset as still valuable but potentially better served under other payment&credit analytic names.Hypothetically,in a sale scenario,we believe proceeds would best serve to buy-back shares and grow the new dividend,particularly since VRSK was clear at its recent IR day that it was not going to enter any new verticals.INFO&CMS:As an info conglomerate this discussion could go many ways,but with management clearly stating their focus to be in the big 3 areas(Transportation,Resources,Financials),the underperforming and dilutive CMS piece($560m Revenues growing LSD;23%margin)needs to be addressed more seriously.While we understand that ECR,TMT&Product Design are individually good businesses,their LT growth rates(L-MSD)and margins are dilutive to INFO;and focus would be more appreciated-especially in the context of 3.4x leverage today post the Ipreo acquisition.INDUSTRY UPDATE U.S.Business&Professional Services NEUTRAL Unchanged U.S.Business&Professional Services Manav Patnaik+1 212 526 2983 BCI,US Gregory Bardi,CFA+1 212 526 7188 BCI,US Ryan Leonard+1 212 526 2135 BCI,US Barclays|BIPS 17 April 2019 2 CONTENTS TIME TO THINK ABOUT PORTFOLIO RATIONALIZATION.3 TRU&Healthcare Better core competency areas to invest in.4 MCO&ERS Diversification by itself is not enough.8 VRSK&Argus The next step on its journey.12 INFO&CMS A matter of time?.17 ARMK&Uniform Hard to figure out the right solution.20.WITH MANY GOOD HISTORICAL EXAMPLES.24 ECL&Energy Announced spin;prelude to a sale?.24 SPGI Divesting its way to a Financial Info Conglomerate.26 TRI Now a much cleaner Legal/Tax info story.27 CTAS exiting Document Storage/Shredding.28.ALBEIT SOMETIMES EASIER SAID THAN DONE.29 INFO holding on to MarkitSERV due to low valuation.29 LAUR deciding to keep Walden University.30 Barclays|BIPS 17 April 2019 3 TIME TO THINK ABOUT PORTFOLIO RATIONALIZATION In a somewhat surprising but welcome move on 2/4/19,ECL announced the spin-off of its Upstream Energy business($2.4B Revenues,$340M EBITDA)which in our view reduces one of the major concerns for the company(i.e.cyclicality of Energy).With this context,we take a step back and look more broadly at our BIPS companies for businesses that have less of a fit to core operations and where we think management teams need to lay out why it makes sense to keep these assets as part of the broader portfolios.And to be clear,we view the businesses we call out below as good assets with interesting opportunities,but just not the right strategic fit.In each case,we believe monetization could go a long way to position the parent company to not only possess greater flexibility to weather the next recession or slowdown,but also re-invest in more attractive and relevant areas to the core businesses.EYs 2019 Global Corporate Divestment Study put it best:“In their quest for greater value,C-suites across the globe face a myriad of forces affecting divestment plans from shifting customer expectations,to technology-driven sector convergence,to ongoing shareholder pressure.Companies are streamlining operating models so that they can pivot more quickly in pursuit of new growth opportunities and stay competitive.In particular,they are using divestments to fund new investments in technology,products,markets and geographies.”See Figure 1&Figure 2 below.FIGURE 1 84%of Global Co.s expect to initiate a divestment within the next two years(a big jump from 2013-17 expectations)FIGURE 2 with 60%+reinvesting funds in core businesses;among other alternatives.%of Global Companies that expect to initiate their next divestment within the next 2 years(2013-2019)Survey of companies:What did you do with the funds raised from your most recent divestment?Source:EY Global Corporate Divestment Study 2019 Source:EY Global Corporate Divestment Study 2019 Below we focus our discussion on four Information Services companies that stand out to us from this portfolio rationalization perspective:1)TRU&Healthcare;2)MCO&ERS;3)INFO&CMS;and 4)VRSK&Argus.To be clear,the four companies currently appear committed to these businesses,and have not indicated any interest in a potential divestiture,to our knowledge.As we lay out in our report,however,we think that it makes strategic sense for each to reassess the fit of these assets,sooner rather than later.Generally speaking,in the event of a potential sale,we believe each transaction would be modestly dilutive(think-LSD EPS dilution);but would be more than offset from a valuation standpoint as it would lower leverage,increase flexibility for future deals,and remove investor frustration points.46%33%20%49%43%87%84%201320142015201620172018201960%60%44%38%25%56%67%44%43%26%63%53%44%33%24%59%60%44%39%25%GlobalAmericasAsia-PacEMEAInvested in core businessInvested in new products/markets/geoPaid down debtMade an acquisitonReturned funds to shareholdersTodays note focuses on 4 Info Services companies that stood out to us as having potential divestiture candidates:TRU&Healthcare;MCO&ERS;INFO&CMS;and VRSK&Argus.We also touch on ARMK with its Uniform business,but see no clear options for it currently.Barclays|BIPS 17 April 2019 4 TRU&Healthcare Better core competency areas to invest in Bottom Line:For Info Services companies,Healthcare tends to offer a tempting opportunity as huge complexity within the industry leads to large TAMs.However,these ventures in Healthcare have been broadly disappointing,and the unpredictability and lumpy nature of the revenues has been a headache for investors accustomed to more stable businesses.As a result,we view Healthcare as a unique animal that is typically better served by pure-play healthcare info companies that have the scale to provide enterprise-wide solutions.For this reason,we continue to struggle justifying TRUs presence in the Revenue Cycle Management(RCM)space.We believe there is a real argument that TRU would be better served in partnering and selling its unique ID and credit solutions rather than continuing to acquire and grow this business.This is especially the case in the context of the potentially big opportunities that TRU still has in its core Financial Services vertical.We think this question is timelier in light of TRUs current 4x+leverage and likely active bolt-on M&A pipeline.Background for TRUs Healthcare business We can all appreciate that the U.S.healthcare ecosystem is fragmented,complex and very tough to navigate for all parties involved.Additionally,with$3.5Tr(20%of GDP)spent on Healthcare,we see a clear opportunity for data and analytic companies to help streamline processes.This provides some context for why TRU(and EXPN)have invested so much in the Revenue Cycle Management(or RCM)segment of the market.However,we are not entirely convinced that credit decisioning and insight companies such as TRU need to play in this space.We think this is all the more apparent when looking at TRUs core financial vertical where TRU seems confident of achieving+HSD long-term growth(off 4-5x the base of Healthcare),vs.the+MSD/HSD growth potential in Healthcare(a slowdown from the“Strong DD”in the past,and could be further impacted by the ongoing customer consolidation).We were looking for TRUs March 12 IR Day to better appreciate the need to own its Healthcare business(7%of TRU revenues,Figure 3);but other than portfolio diversification,we are still struggling for answers.In fact,Dave Wojczynski,President of TRU Healthcare,made some comments to this effect as well:“So first of all,Im sure many of you might be sitting out there wondering,why is TransUnion even in health care,right?And I was asking myself the very same question 9 years ago when I was joining the firm,and I admit I didnt quite get it at first,but Id like you to take a second,take a minute and step back and think about the synergy that we can create.Information services,big data management,analytics,predictive modelling,intelligent positioning,these are all things that we do in healthcare.Our vision is to leverage data and analytics to help these health care providers,reduce revenue leakage,maximize reimbursement,reduce uncompensated care and enhance the overall financial experience.Although the type of data and information that we leverage in health care is a little bit different,its a little bit unique and some of the problems that we solve are a little bit unique,the underlying fundamentals and principles are exactly the same.So being part of TransUnion really enables us to create great leverage,expand our margins and that makes us a fantastic fit be part of TransUnion.”TRU Stock Rating OVERWEIGHT Industry View NEUTRAL Price Target USD 72.00 Price(15-Apr-2019)USD 70.31 Potential Upside/Downside+2.4%Barclays|BIPS 17 April 2019 5 FIGURE 3 Healthcare accounts for 7%of TRUs total revenues or$170M(as of FY18)Source:Company Reports,Barclays Research Why is now a good time to take a fresh look at the business?Healthcare saw steady“strong double double-digit”growth during 2011-17,built up from a number of acquisitions(e-Scan,Auditz,RTech,HPS,Rubixis).Recently though,results have been softer(flat in 3Q18 and return to modest growth in 4Q18),caused by weakness on the front-end(consolidation and some operational issues at customers).TRU is now anticipating the business will grow at mid-single digits in 2019 and at high-single digits over the long term(even after recent headwinds subside).Some quick thoughts:We understand the reasons why TRU would want to continue playing in the Healthcare space.Namely,a)diversification from consumer credit cycle and largely acyclical growth;b)hypothetically very large TAM given all the complexity in the healthcare system;c)long tail of smaller competitors that makes for an attractive roll-up story;and d)harder to reverse course so quickly as it is a newer vertical for TRU.but the recent hiccup has highlighted some of the challenges that could re-occur.While+HSD is a respectable growth rate for an acyclical business,risks arise from the ongoing consolidation among its hospital customers and the inherent volatility in healthcare systems historically a tough space for many in our universe to navigate(think VRSK,IMS,ECL,EFX/ACA).Note that,as TRU increasingly focuses on back-end RCM(where it has more scale vs.front-end where EXPN is larger),the business naturally becomes more lumpy in terms of revenue timing which can also frustrate investors.Note:At its IR Day,TRU said that it did not expect“onetime market consolidation events and some unique onetime customer events.to persist.”However,continued hospital consolidation seems inevitable with Deloitte projecting much more for the next several years(see Figure 4).This is on top of just continued vertical integration deals in healthcare which ultimately could create more unique customer events.USIS-Financial Services32%USIS-Healthcare7%USIS-Insurance6%USIS Other14%International21%Consumer Interactive20%Barclays|BIPS 17 April 2019 6 FIGURE 4 Deloitte estimates there will be 50%less unique health systems from 2014 to 2024E,likely with a larger number of hospitals per system.Source:Deloitte,Kaufman Hall,RWJF,Barclays Research .and we think it is worth considering the relative attractiveness of Healthcare vs.other growth opportunities.As TRU looks at what will drive the next leg of+HSD/LDD growth across the company,we think its fair to raise the question whether Healthcare is worth incremental investment compared to opportunities in other large growth verticals(e.g.,fraud/ID;digital marketing)and emerging market penetration.And given that Healthcare and revenue cycle management will likely remain a scale/consolidation story;if one decides not to be a buyer,does that imply that one should be a seller?We think this question is all the more timely in light of TRUs current 4x+leverage and likely active bolt-on M&A pipeline.especially as Healthcare is the least synergistic business within its portfolio.Like the rest of the credit bureaus,TRU starts from an enviable position of having one of the most valuable datasets possible in terms of its credit file.From this starting point,TRU has done a nice job of leveraging this data plus adding next-gen analytics and other proprietary datasets to expand with core financial customers as well as other new verticals(insurance;fraud/ID;government