Data analytics firm Veda Group Ltd (ASX: VED) is a leading provider of credit information and analysis in Australia and New Zealand with approximately 12,000 business customers relying on Veda's services to conduct background checks on employee information and minimise the threat of identity theft.
Despite losing some ground in the past couple of months, here are four compelling reasons why I think Veda shares are an attractive long-term buy for investors wanting exposure to a growing company.
1. Strong customer relationships and market position
Veda certainly holds a dominant market position given its large pool of data, maintaining information on more than 20 million people and 5.7 million businesses. If customers want quality information, Veda is their number one place to go to. This creates massive competitive advantages, making it a leader in the data analytics market and protecting Veda from the threat of new entrants. Any attempts to replicate Veda's client base would be hard and costly, because of Veda's long history in the analytics market.
Competitive advantages are extremely important long-term tailwinds for all companies. Veda's sparkling business model enables it to sustain its competitive advantages, ensuring growth for the decades to come.
2. Lower interest rates creates credit growth
A major earnings driver for Veda is credit growth, and given our historically low interest rate environment, our economy will see much more demand for credit purchases, allowing Veda to take advantage of this in the medium term.
3. Stricter credit standards
After the GFC, companies saw how important it was to conduct stricter credit checks and lend to customers with a good history. This provides companies like Veda a great opportunity to take advantage of higher demand for the long term, given the fact that companies will continue to adopt these measures into the future. Ultimately, quality companies like Veda will be first in line to service the needs of its corporate customers.
4. Impeccable track record
Veda has the added benefit of having quite a "sticky" revenue stream, given the industry it operates in. Incredibly, Veda has been able to grow revenues every year since FY1993 at a compounded rate of 14.6% per annum. This shows how Veda's dominant market position enables it to comfortably grow demand for its services at a stellar rate.
When weighing Veda's relatively high price-to-earnings ratio of 22 to its ultra promising growth prospects and track record, it's easy to see why Veda is my preferred exposure in its sector. Veda is a solid long-term buy for me and I think it will continue to be a growth story as it expands into new areas.
