FTSE 100 firm RELX (REL) is ‘ahead of the game’ when it comes to integrating artificial intelligence (AI) into its business and we think this continues to be underappreciated by the market. We expect that to change in 2024 and this makes the shares a compelling investment for the year ahead.

RELX takes large datasets and analyses these for clients across a range of sectors as well as publishing scientific journals and research. The latter includes ScienceDirect - the world’s largest platform dedicated to peer reviewed primary scientific and medical research - which has proved to be resilient particularly in times of macroeconomic and geopolitical uncertainty.

The company has been investing in innovation around data analytics and AI for several years which is helping to reinforce an already strong competitive position. It is also supporting a move from a low-single-digit organic growth rate to mid-single digit growth, with the company’s progress augmented by bolt-on acquisitions.

The company has four separate divisions: risk, legal, exhibitions and scientific, technical, and medical (STM) and enjoys strong recurring revenue thanks to a subscription-based business model.

RELX observes that its products often account for less than 1% of its customers‘ total cost base but can have a significant and positive impact on the economics of the remaining 99%. In other words what RELX charges its customers is a very small proportion of their overall spend but is also really significant to how they do business which helps reinforce the stickiness of its revenue streams.

The application of generative AI is probably most advanced in the legal division where its Lexis +AI product is bringing artificial intelligence capabilities to its existing research platform. This can help lawyers digest complex legalese and conduct useful analysis.

The company’s exhibitions division is running ahead of pre-pandemic levels with a 12% increase in first half revenue with exhibitors now using a growing range of digital tools.

The stock often looks fairly expensive but if you if you’d let a similarly lofty valuation put you off a decade or so ago, for example, you’d have missed out on a total return of more than 300% in the interim or around 15% on an annualised basis.

RELX will continue to develop and incorporate content, higher value-add analytics, decision tools and generative AI across all its segments and the company is well positioned to be beneficiary of the long-term structural growth in this area.

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