On 7/29, S&P Global announced impressive Q2 earnings with EPS up 6%.
Key takeaways are:
- Revenue up 8% to $2.1b
- Expense growth of 9% as expenses normalized post Q1
- Strong issuance in high yield, bank loans and CLOs
- SPGI increased EPS guidance for 2021
Current Price: $426.27 Price Target: $450
Position Size: 2.95% Performance since add on 2/3/21: +32%
2020 Highlights:
- Ratings (50% of revenue)
- Revenue grew 7% and trailing four-quarter operating profit rose +30%
- Margins fell -100 bps to 68.1%
- Global bond issuance fell -9%, but bank loans and high yield issuance surged +70%
- Non-transaction revenue (not related to bond issuance) increase 19% Y/Y and is over 40% of ratings revenue
- Market Intelligence (26% of revenue)
- Revenue grew +8% Operating profit rose +11%
- More than 1/3 of revenue growth was from recent product investments with solid growth across all categories
- Margins increased +100 bps to 33.4%
- Platts (11% of revenue)
- Revenue grew +9% and operating profit rose +15%
- Strong growth in all categories with trading services growing 18% over past 10 years
- Margins increased +170 bps to 55.9%
- S&P Dow Jones Indices (13% of revenue)
- Strong growth in index fees – ETF AUM was $2.4t up 51% Y/Y
- Revenue grew 16% and operating profit rose 7% Y/Y
- Margins fell -100 bps to 69.2%
Growth initiatives
- Implementing ESG offerings across platform – ESG revenues up 40%
- China analytic platform – 22 ratings in 2020 and 25 ratings so far this year
- Technology expertise – Kensho AI initiatives
- RiskGuage, ProSpread, Riskcasting Indices, Moonshot index, Kensho Scribe and many others combining data and analytics
- Merger with IHS Markit remains on track for closure in Q4 of 2021
Capital allocation
- SPGI has a current yield of .67%
- SPGI has repurchased 14% of outstanding shares over past 5 years
- Currently, share buybacks are on hold with the pending merger of IHS Markit. SPGI has $5.2b of cash piled up on the balance sheet and generated $1.5b in free cash so far this year. Expect ~75% to be returned to shareholders post merger.
S&P Global Investment Thesis:
- S&P Global is a highly profitable company that has established businesses with deep moats in attractive industries
- S&P Global is focused on shareholders and returns 75% of free cash flow in dividends and share buybacks
- Over the past several years, S&P Global has demonstrated an enviable history of revenue growth and margin expansion
- With the merger of IHS Markit, S&P Global will combine many unique data sources, enhance data analytics capabilities, and broaden addressable markets.
Please let me know if you have any questions.
Thanks,
John
[category Equity Earnings]
$SPGI.US
John R. Ingram CFA
Chief Investment Officer
Partner
Direct: 617.226.0021
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109