Data analytics business Veda Group Ltd (ASX: VED) has fallen roughly 8% in recent weeks, in line with the heavy losses endured by the benchmark S&P/ASX 200 (INDEXASX: XJO). Although the shares still command a high premium (trading on a trailing P/E ratio of 33x), the recent pullback in price could be a fantastic opportunity to start building a position.
Here are five big reasons why Veda Group is such a compelling buy today…
1) Monopoly. One of the things I like most in this business is its competitive advantages – or 'business moats', as legendary investor Warren Buffett would describe them. In its 46 year history, Veda Group has managed to build a database with records on 20 million individuals and 5.7 million business, giving it a very dominant position in the industry. In fact, estimates suggest Veda controls 85% of the consumer credit bureau in Australia.
2) Rich History. Veda Group managed to string together 20 consecutive years of revenue growth between FY1993 and FY2013 and, as if that wasn't enough, it grew at a compound annual growth rate of 14.6% over this period. In FY14, revenue grew by 12.4% while EBITDA jumped 21.7% (both of which were well above prospectus forecasts) with strong results anticipated over the coming years too.
3) Growth. The introduction of the new 'Comprehensive Credit Reporting' regime will allow Veda to collect a broader range of data which will enhance its product offering to customers. This new data will include information such as the type of credit account opened and the date in which it was opened, current limits on existing accounts as well as the borrower's repayment history and whether they've met all obligations.
4) Defensive. This factor is particularly appealing right now in light of the economic conditions recently. Veda Group's revenues tend to increase in times of economic uncertainty as demand for credit checks rise when businesses become more cautious as to who they are lending to. Revenues rose even through the dotcom crash as well as the more recent Global Financial Crisis.
5) Dividends. Thanks to its strong full-year result, the company managed to pay twice the amount in dividends it had forecast. It paid 4 cents per share giving the company a yield of 1.7%. The company intends to eventually attach franking credits and distribute between 40%-60% of overall profits.
I bought shares in Veda when they were trading at roughly $2.09, and I would happily buy more at today's price. While the stock's valuation might deter some investors, strong growth is anticipated meaning that the shares could climb much higher over the coming years.
As attractive as Veda Group remains however, there appears to be an even greater opportunity brewing right now that you really ought to take a look at…
