- Dow Jones Indices had a blowout quarter with revenue up 28% and margins up 660 bps!
- S&P Revenue up 13% with solid growth in all four segments
- Expense growth of 7%
- Operating margins expanded 250 basis points to 55.4%
- Expect IHS Markit merger to close Q1 2022 after some divestitures
Current Price: $462.60 Price Target: $480 (raised from $450)
Position Size: 3.10% Performance since add on 2/3/21: +43.5%
2021 Q3 Highlights:
- S&P Dow Jones Indices
- Asset-linked fees were up 36%! YoY ETF AUM up 43%!
- Revenues benefited from strong price appreciation and inflows
- Strong growth in index fees – ETF AUM was $2.4t up 51% Y/Y
- Revenue grew 28% and operating profit rose 40% Y/Y
- Margins rose +660 bps to 69.2%
- Ratings
- Global bond issuance increased 3%, with strong growth in high yield, Bank Loans and CLOs
- YoY revenue grew 14% and operating profit rose +17%
- Margins rose +160 bps to 63.4%
- Non-transaction revenue (not related to bond issuance) is over 40% of ratings revenue
- Market Intelligence
- Revenue grew +7% Operating profit rose +13%
- Margins increased +190 bps to 35.7%
- Platts
- Revenue grew +8% and operating profit rose +5%
- Margins decreased -110 bps to 54.6%
IHS Markit merger update
- Closing target Q1 2022 from second half 2021
- IHS Markit will divest OPIS, Coal, Metals & Mining (CMM), and PetroChem Wire businesses to News Corp and Base Chemicals business
- S&P Global will divest CUSIP Global Services and Leveraged Commentary and Data, together with a related family of leveraged loan indices.
- Despite divestitures, S&P has raised cost synergies to $530m-$580m (from $480m) and revenue synergies to $330m-$360m (from $350m)
Growth initiatives
- Implementing new ESG offerings across platform – ESG revenues up 40%
- Technology expertise – Kensho AI initiatives
- RiskGuage, ProSpread, Riskcasting Indices, Moonshot index, Kensho Scribe and many others combining data and analytics
- Merger with IHS Markit
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 $5.8b of cash piled up on the balance sheet. Expect some of this excess cash and ~85% of annual free cash flow 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 questions.
Thanks,
John
[category Equity Earnings]
[tag SPGI]
$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