Continuing our search for high-quality, undervalued European growth companies, we believe Netherlands-based provider of business information, software and digital services Wolters Kluwer (WKL:AMS) looks an attractive bet.
As computing power and AI (artificial intelligence) applications grow, companies are realising data is no longer just a by-product of their day-to-day business but a valuable asset which can be used for decision-making and gaining a competitive advantage.
As the volume of data grows, new technologies are enabling companies to find new ways of extracting value, and Wolters Kluwer is a gold mine of high-quality data across the health, tax and accounting, financial and corporate compliance, legal and regulatory and ESG sectors.
Almost all its services are provided digitally, with software accounting for 45% of 2024 revenue, 92% of which was recurring, while digital information services accounted for 40% of revenue, with the balance made up by services (10%) and print (5%).
Over a quarter (27%) of last year’s revenue came from the health industry, where the company provides clinical decision support, drug information, patient engagement tools, medical research and nursing education to healthcare professionals, hospitals and medical institutions.
A similar amount (26%) of revenue came from tax and accounting software which enables firms to increase productivity and deal with changing regulations.
The firm’s strong cash generation means it has been able to ramp up investment to improve margins and drive organic growth.
As analysts at Panmure Liberum point out, as Wolters has transformed from delivering services via print to digital over the past decade its operating margin has risen sharply to 27% which is better than many tech and media businesses and well ahead of the broader market.
‘These margins stick to the bottom line, with the company reporting above-market tech and media profit margins over the last decade,’ point out the analysts.
Another plus point for Wolters is that EPS (earnings per share) volatility is a lot lower than the media sector, with its business model largely unaffected by the technology and business cycle, add the analysts.
The firm has also been using AI tools in its software solutions for more than 15 years and is now moving into ‘agentic’ AI in an agreement with Microsoft (MSFT:NASDAQ).
We believe Wolters offers tech-like upside, with a high degree of recurring revenue and earnings – as shown by its forecast-beating first-half results and upgraded full-year guidance – but at a big discount. The shares trade on 23 times 2026 forecast earnings compared with 27 times for UK-listed peer RELX (RELX).
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