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TRI shares lower after 'a blip'

Thomson Reuters shares closed more than three per cent lower on Thursday after the company's latest earnings report missed forecasts and investors showed concern that a measure of financial clients' future demand declined for the first time in almost three years.

Cancellations outpaced sales in the company's biggest division, financial and risk, for the first time in 11 quarters, helping to push the stock down more than three per cent on both exchanges.

TRI stock hit its lowest point since mid-November, closing 3.22 per cent lower at $43.24 in New York and 3.32 per cent lower at C$56.80 in Toronto.

Financial and risk provides news and analytics to banking, investment and other professional clients and accounts for half of total company revenue. Its revenue rose one per cent to $1.5 billion, but the division's net sales decline after 10 quarters of increases was called an area of concern by several analysts.

"The net sales being down in the quarter is probably why the stock is down," Doug Arthur, managing director at Huber Research Partners, told Reuters. "They've had a blip," he said. "That's clearly a disappointment... that has ramifications for quarters down the road."

Asked about the F&R business, chief executive James Smith said in a Reuters interview: "The big European banks, and to a lesser extent Russia and Brazil, impacted our financial business disproportionately this quarter.” He added that the company was well-positioned to help clients in an uncertain regulatory and economic environment.

Financial and risk did not see a big swing in demand, Smith later told analysts on a conference call.

"In this low-growth environment, in any given quarter, one or two contracts can determine if we're above-the-line positive or below-the-line negative," he said. "There wasn't some dramatic shift."

Toronto’s Globe and Mail reported: “Looking ahead, Thomson Reuters is expecting revenue growth in the low single digits, and sees both promise and peril in a volatile global environment that should bring higher interest and a lighter regulatory burden, particularly in the U.S. since the election of Donald Trump as President, but also the likelihood of more protectionist sentiment and instability in Europe.

“‘Everyone’s expecting that the world’s going to change pretty fast, and there’s a great deal of uncertainty about which direction that change will take,” Jim Smith, president and chief executive officer of Thomson Reuters, said in an interview.

“‘So when I think about our business, we thrive in times of change. What we do is help our clients navigate that change,” he added.”

The Globe and Mail said the process of shedding thousands of jobs in 39 countries had brought noticeable change inside the company as well, mostly in the financial and risk division and the enterprise, technology and operations centre, a group created last January.

It quoted Smith saying “The new leaner team is functioning really well.”

At the same time, Thomson Reuters had been bulking up in Toronto, where it recently opened a new technology hub that should add about 400 jobs to the city over the next 18 months. “We’re dead on track with where we’d hoped to be at this point,” Smith said.

Forbes magazine said the company’s stock had entered oversold territory. It reported: “Legendary investor Warren Buffett advises to be fearful when others are greedy, and be greedy when others are fearful. One way we can try to measure the level of fear in a given stock is through a technical analysis indicator called the Relative Strength Index, or RSI, which measures momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30.

“In trading on Thursday, shares of Thomson Reuters Corp (Toronto: TRI) entered into oversold territory, hitting an RSI reading of 27.4, after changing hands as low as $56.46 per share. By comparison, the current RSI reading of the S&P/TSX Composite Index is 60.8. A bullish investor could look at TRI's 27.4 RSI reading today as a sign that the recent heavy selling is in the process of exhausting itself, and begin to look for entry point opportunities on the buy side.” ■