Wolters Kluwer NV (WKL), Europe’s largest tax and legal publisher, will expand its China workforce by 17 percent in the next six months to seize opportunities presented by the nation’s reforms of the health and legal industries.
The publisher will add about 50 people, including sales staff and subject-matter experts such as physicians and legal scholars, to the 300 now in the country, Chief Executive Officer Nancy McKinstry said in an interview in Beijing today. “The level of change around regulations, legal developments and medicine continues to increase rapidly,” she said.
Wolters Kluwer is turning to faster-growing markets in Asia, such as China and India, to counter conditions in Europe that remain challenging, McKinstry said. The company, which in July affirmed its outlook for a “low single-digit” growth in earnings per share this year, plans to boost sales outside the U.S. and Europe to more than 10 percent of the total within three to five years, from 7 percent now, she said.
“The growth potential in Asia, in particular in China, is huge,” Peter Olofsen, an Amsterdam-based analyst at Kepler Capital Markets Inc., said in an e-mail on Aug. 24. “However, relative to Europe and North America, the business in Asia is still small.”
Olofsen recommends holding Wolters Kluwer shares. He is one of 10 analysts with that rating, while 14 have the equivalent of a buy recommendation and seven suggest selling the stock, according to data compiled by Bloomberg.
Wolters Kluwer’s products including industry data will meet the needs of professionals as China subsidizes improvements to the health-care system, McKinstry said.
China’s government budgeted 850 billion yuan ($134 billion) in April 2009 for a health-care overhaul to lower the costs of essential drugs and provide more than 90 percent of the population with basic health insurance. The spending in the past three years exceeded 1.1 trillion yuan, the official Xinhua News Agency reported in March this year.
The State Council, China’s Cabinet, has proposed increasing the education standards of general practitioners and having two or three better-qualified doctors for every 10,000 residents by 2012, it said in June last year.
China has also implemented changes to the legal system, including an overhaul of its 1979 criminal law for a second time in March to add provisions to protect human rights as a principle of law. Other amendments this year include omitting the use of confessions obtained by torture or violence, and removing restrictions on defense lawyers’ access to defendants.
Shares of Alphen aan den Rijn, Netherlands-based Wolters Kluwer have gained 11 percent in the past 12 months, lagging behind the 17 percent gain for the Amsterdam Exchanges Index.
“It’s difficult to see a significant re-rating for the shares until the company can accelerate organic growth,” Claudio Aspesi, a London-based analyst at Sanford C. Bernstein Ltd. with the equivalent of a hold rating on the stock, said in a telephone interview. “They are overly exposed to businesses with limited volume growth and limited pricing power.”
To bolster growth, Wolters Kluwer has sought partnerships in China. The company entered a joint venture with drug- information provider Medicom to deliver clinical-decision support to doctors in the world’s most populous nation, it said in January last year.
As Wolters Kluwer faces a decline in print products, it is targeting online, software and service offerings as customers migrate to applications for mobile devices, laptops and tablet computers, McKinstry said.
In the past six months, the company has created applications that can be accessed by tablet computers and smartphones for 52 of its 300 medical journals, and the rest will be available on mobile devices by 2013, she said.
Those apps are generating higher advertising revenue than print publications because they provide Wolters Kluwer with more data on readership patterns to give advertisers, McKinstry said. The CEO didn’t provide revenue figures.
The financial and health divisions have “substantial growth potential” that isn’t currently reflected in the stock price, said Hans Slob, an analyst at Rabobank International in Utrecht, the Netherlands, who recommends buying the shares. With an estimated yield of 5.2 percent, Wolters Kluwer is “a great dividend stock,” he said in an Aug. 24 e-mail.
To bolster the stock price, McKinstry will have to win back analysts such as Tim Nollen at Macquarie Capital USA Inc.
“There is a big opportunity as the legal profession grows and health care takes on more and more prominence” in China, Nollen said in an e-mail on Aug. 25. “We have had outperform ratings previously, but now are neutral due to the very slow growth nature of the business.”
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