“The Only Constant Is Change”
– Heraclitus
52%.
Would you invest in a company that today generates more than half of its revenues from print media?
Probably not. That business is extinct.
I know this is a bit of an exaggeration, but I think you will agree that you are no longer willing to build a business on something that is essentially print based. A great example is how “20 Minuten” in Switzerland is struggling as they must cope with less advertising revenue while they have not built on the subscription economy. Competitors have adapted to the changing trend much earlier.
The figure above belongs to Wolters Kluwer. A Dutch publisher and global information services company. That was the revenue contribution of its print business in 2004. Now it is in single digits.
Its adaptability to changing tides is amazing and probably the reason why it is still in the market. At the same time, both digital and recurring revenues have increased to an incredibly significant level.
A full 81%.
Chart 1: The print media/newspaper industry has faced enormous pressure in recent years
Stability and visibility meet a reliable partner
Wolters Kluwer was founded in 1836 as a bookstore and publishing house, focusing on educational publications. In its 200-year history, the company has experienced a lot of turbulence.
Just think about that for a moment.
Two centuries…
Funnily enough, the publisher’s name is not exactly on everyone’s lips when it comes to investing. But in its four niche areas (chart 2), it is a very well-known and reliable partner.
Think specialized information that helps doctors, accountants, lawyers, tax and finance professionals with their research. 93% of Fortune 500 companies use its high-quality information databases and software solutions, for which they pay large sums of money in the form of licenses and subscriptions.
Example?
Wolters’ clinical solutions business (Health), where its subscription-based resource UpToDate, a database and decision support tool, is currently the global market leader with over 1 million users. The resource allows users to access the most up-to-date information on patients.
Subscription-based services like these have enabled Wolters to significantly increase the level of recurring revenue across the company. We love recurring revenues. They are synonymous with stability and visibility in a business model.
These two terms typically represent quality characteristics and are often reflected in compounders.
And that is not all.
Chart 2: Wolters Kluwer Business Mix
Source: Wolters Kluwer
A Dividend Growth Stock
Wolters Kluwer is a hidden European dividend growth stock with a remarkable dividend growth history of 34 years.
Just this Wednesday, Wolters Kluwer released Q3 2023 revenue and earnings figures and committed to its progressive dividend policy of increasing its dividend per share in euros every year.
Wolters Kluwer does not pay the highest dividend (1.6%), as the company can still reinvest on high returns on capital in its own business. Nevertheless, it is one of the 30 or so European dividend growth stocks (if you are interested in the list, reply to this email) and is, in our humble opinion, one of the highest quality companies in Europe.
But as we know, quality comes at a price. It is richly valued.
In traditional P/E ratio terms.
Always.
Chart 3: Wolters Kluwer Annual Dividends, in EUR
Source: Wolters Kluwer
The prejudice: quality is always expensive
What I find very impressive is that the company has always stayed true to its core while reinventing itself as technology evolved.
A new catalyst for the company now is the whole trend towards machine learning and artificial intelligence, as the business is very data-heavy – and structured and clean data is needed. That is exactly what Wolters Kluwer has to offer.
A structural growth trend with an interesting return on capital meets high recurring revenues, low churn (85% renewal rate) and, on top of that, attractive dividend growth in an industry that is largely immune to economic cycles.
All key attributes for strong business models.
It is quite simple. Wolters is much better than average. That’s why the market is allowing the stock to trade at a premium. Add to that a track record that has shown it can withstand whatever may come its way. It clearly shows that you must be adaptive to survive in the long run. As we all know, the only constant is change.
Expensive does not sound too expensive anymore, does it?
Chart 4: Wolters Kluwer since 2015
Source: TradingView
arvy’s takeaway: Wolters Kluwer’s 200-year history is a testament to the power of adaptability. From a humble bookstore to a global information services giant, it is thrived by staying ahead of the curve. Specializing in critical information for professionals, its subscription-based model offers stability and visibility. Combine this with a stellar dividend growth history, and you have a hidden gem. Quality comes at a price, but Wolters Kluwer is just better than average.
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