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22 December 2020

FactSet gets its FactsRight with stable earnings growth

FactSet is a company which develops data and software solutions centred around the investment industry. This software provides analysis of macro trends, company-specific and industry performance. Access to this product facilitates financial research for investment professionals.

FactSet announced its earnings for Q1 2021, showcasing some positive metrics, client retention and expansion strategies. The company posted revenues up 5.9%, which equates to a US$21.5m increase when compared with Q1 2020, this was primarily due to higher sales of Analytics and Content Technology Solutions. Another major revenue stream for the company is its Annual Subscription Value (ASV) plus professional services, this refers to its data software that is sold to their clients for an annual fee. ASV plus professional services generated US$1.56bn for the company, US$80m more than the year before, this is likely due to the firm’s continually high retention rate at 95%, while also acquiring new clients, driving revenues higher. Unfortunately, the higher sales in FactSet’s Research Workflow Solutions were offset by the fall in sales in Wealth and Analytics.

Diluted earnings per share (EPS) increased by 7.8%

The company managed to widen its operating margin by mainly reducing the employee-linked operating expenses, such as the lowering of costs from employees working from home rather than in the office due to Coronavirus. This allowed the company to increase its operating margin to 31.2% compared to 30.9% in the same quarter of last year.

FactSet provide a range of data analytics services to all arrives of the financial services industry, catering for the needs of both the buy-side and sell-side. ASV growth rates for Q1 2020 for buy and sell side were 5.1% and 4.4%, respectively. Buy-side financial service companies account for c84% of ASV revenues whereas the sell-side, who cater for Mergers & acquisition advisory, Equity Research and Debt and Equity Market Services accounted for the smaller remaining portion.

In a very volatile time for many companies, resulting in an uplift of unemployment, FactSet appears to be growing, with an increase in its workforce of 7.7% over the last 12 months. This increase in employees is likely to match their increasing client base. Clients in the case of FactSet refer to companies rather than individuals which has increased by 64 clients in the quarter led by an increase in Corporate and Wealth Management Clients.

The company displayed a decrease in its capital expenditure to US$18.3m for the quarter, a significant fall from US$26.8m a year ago, with the company citing lower facilities spend. It is likely that with the company’s acquisition of Truvalue, this will also be an area of significant focus going forward. Truvalue utilises AI technology to analyse and breakdown 100,000 unstructured text sources in 13 different languages, which covers a wide range of data source types to find signals of positive and negative ESG developments of companies and wider organisations. This could highlight that FactSet is becoming increasingly conscious of its clients’ demand for information relating to ESG.

Further to this acquisition, FactSet is also working closely with Scanrate, a company that uses software and models to analyse the Danish Bond Market. This increased coverage could prove beneficial in future quarters by helping the company gain attention from clients on the continent.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
FactSet gets its FactsRight with stable earnings growth
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