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Expect more job cuts at Thomson Reuters, say analysts

Cost-cutting at Thomson Reuters, where up to 3,000 people were laid off this month, may start to accelerate, a scenario made likely by continuing headcount reductions at global banks and relatively low equity and foreign exchange transaction volumes, analysts said in extensive investment reports this week.

Some $110 million in efficiencies is forecast for the finance and risk division, which represents approximately 57 per cent of Thomson Reuters revenues, this year. Credit Suisse said: “Against a weak revenue backdrop and a Management team that has now had over a year to better assess the F&R division, we believe cost cutting may start to accelerate.” There is potential for further upside if headcount reductions are more aggressive, it said.

UBS said management was likely to follow global banks’ strategy on costs. “Financial job losses are near 4-year-high, and are expected to accelerate as global banks seek to sustain profitability. We believe it makes sense for F&R to follow similar cost reduction strategy as the global banks, F&R’s largest customers. Given improvement in business environment appears unlikely in foreseeable future, we believe mgmt is determined to right size F&R’s work force for a significant portion of savings in 2013. While the reported elimination of up to 3,000 jobs at TRI suggests a swifter cut than we had anticipated, we see further cuts for F&R ahead.”

UBS believes the group’s new management under chief executive James Smith has been focusing on developing a cost reduction strategy, particularly for F&R, since mid-2012. 

It said: “While the reported elimination of up to 3,000 jobs suggests a swifter reduction than we had anticipated, we see further cuts for F&R ahead. We note that, under prior management, the headcount supporting F&R ballooned from 15k to 23k despite the deterioration in its business environment. We believe management is determined to realign the company’s cost structure with the new reality for the business.”

Credit Suisse said that overall, F&R organic revenue trends are expected to remain relatively weak at least through the first half of this year. Bank headcount stabilisation and increased corporate and investor confidence would be key swing factors for net sales and organic revenue trends in the second half and next year.

UBS said that with a new president, David Binet, at the Thomson family’s investment vehicle Woodbridge, the majority owners of Thomson Reuters may become more open to consider the sale of businesses in F&R.

“With a new President at Woodbridge, we see a greater possibility of broader changes at TRI, particularly for the underperforming F&R segment. We believe Woodbridge may become more open to consider options to surface shareholder value, including the potential sale of businesses within F&R. TRI announced the sale of Corporate Services for $390m in mid-December. We believe management will continue to review any business in the portfolio that cannot become a Top 2 player in their respective markets for potential sale or restructuring. We believe the proceeds from such divestitures would largely be used to support future acquisitions in higher growth markets and continued growth of the dividend.”

UBS added: “While we recognize that TRI must still make significant improvements in F&R to regain lost market share in the long-term and that the business is unlikely able to return to growth quickly, we believe investors may be underestimating management’s ability to reduce costs in the near-to-medium term. Financial job cuts are near a four-year-high, but unlike four years ago current management is determined to realign F&R’s cost structure with the new reality for the business.

“We continue to believe the issues TRI has been facing in F&R are fixable, and the Company’s long term upside potential is greater than the near term downside risk.”

Credit Suisse reported no change to its Neutral rating for Thomson Reuters shares and $30 target price. UBS maintained its Buy rating and $34 price target. 

Thomson Reuters is due to report its Q4 2012 and full year results on 13 February. ■

Credit Suisse, UBS