Back in October 2020, Nick Train added FTSE 100 stock Experian (LSE: EXPN) to his portfolio. Train is one of the UK’s highest-profile fund managers and is known for adopting Warren Buffett’s style of investing.
Train has developed a reputation for being unapologetic in his investment strategy. Simply put, it’s buy and hold. Train rarely buys or sells the shares in his portfolio. Given this low turnover, I sat up and took notice when I heard that he’d added Experian.
Why did Train purchase the shares in his portfolio? Should I buy some for my own portfolio? Let’s consider the investment case in detail.
Train’s reasoning behind the FTSE 100 stock
Train doesn’t hold many UK technology stocks. In fact, at 31 December 2020, the Finsbury Growth & Income Trust had a small weighting of 4.9% towards the sector. I think it’s safe to say that Train is probably kicking himself for not having a higher technology exposure in 2020.
Train’s Experian buy was part of a bid to own more substantive companies with credible and globally competitive assets in technology, data, and analytics. The FTSE 100 stock sits alongside existing holdings like the London Stock Exchange and Relx.
The fund manager even admits that he should’ve owned Experian years ago and credits his colleague, Madeline Wright, with encouraging him to purchase the stock.
Long-term growth prospects
Do I agree with Train’s purchase of Experian? Yes, I do. I think the long-term growth prospects for the company are great. A large proportion of Experian’s revenue comes from credit checks. The company calls it ‘data’, which is large datasets of credit history from which reports are generated.
Like Train, I think Experian will benefit from its shift in focus from the data itself to selling data-enhanced software decision tools. The company is investing heavily in developing proprietary algorithms and data management tools. What this does is increase the utility of the underlying data and increase the ‘stickiness’ of Experian’s customer relationships.
Train thinks this shift will occur over the next decade. I expect this decisioning segment to grow rapidly over the next few years.
High-quality business
I think Experian is a high-quality business. Like Train, I like the fact that the company operates in a market with very few competitors.
Experian has been profitable and pays an attractive dividend, which has been covered by earnings. This is the kind of FTSE 100 stock I would like to own in my portfolio. Experian’s business may be boring but it generates a dividend for the income hungry investors.
The FTSE 100 stock is expensive
Experian shares aren’t cheap and are currently trading on a price-to-earnings ratio of 35. Some investors started to fret that he was buying an expensive growth company last year.
I think the fact that Experian has a dominant position within its market and is growing through data analytics justifies the expensive valuation. For these reasons I like this FTSE 100 stock for is long-term growth potential.
