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Initiation of Research Coverage for Two Credit Data and Analytics Firms

Friday, April 8, 2016

William Blair & Company initiated research coverage of Equifax Inc. (EFX $115.45) and TransUnion (TRU $27.45), two of the three main consumer-focused credit bureaus in the United States.

“Credit data and analytics firms have a contributory data business model—i.e., clients provide the data underlying their solutions—that allows them to provide critical information that serves as the basis for lenders to analyze the creditworthiness of their customers,” analyst Tim McHugh said. “These firms add value through the breadth of their data, analytical solutions, and additional data sources. This industry historically has operated as an oligopoly with high barriers to entry. We see little that will disintermediate these companies or disrupt this oligopoly structure.”

McHugh continued, “The sophistication of credit bureau data and analysis continues to improve, with less mature countries still moving away from only using negative credit data, and more advanced countries starting to incorporate broader sources and time series of data. This trend is broadening the scope of services provided by credit bureaus and is helping drive growth and innovation in credit markets around the world. The valuations for these companies are not inexpensive and there are cyclical trends to keep in mind. Still, given the oligopoly competitive structure, expanding addressable markets, and strong business models, we expect these companies to steadily grow over time.”

Looking at the companies individually, McHugh stated, “TransUnion is early in its progression beyond credit data, its international expansion, its leverage of new technology systems, and its margin improvement, so it has both a higher growth and a higher risk potential. We view Equifax as the more established company with a proven management team, strong data assets, and multiple growth opportunities. In addition to the industry’s long-term growth drivers, both companies should benefit from a reasonably solid consumer credit environment. Equifax also should benefit from Fannie Mae’s adoption of trended data in mid-2016, a debt recovery contract for the U.K. government, strong growth in the company’s Work Number business, and strong sales of ACA compliance solutions. TransUnion likely will benefit from Fannie Mae’s adoption of trended data, growth in the ancillary sectors of insurance and healthcare, and strong growth in the consumer market.”

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