SPGI - S&P Global

[Liberty]

I thought this probably deserved a new thread since there's only one for McGraw Hill that hasn't been updated in a long time.

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/mcgraw-hill-financial-(mhfi)/

 

In that thread there's a comment that says:

 

"To me, MHFI is one of those "great, growing companies that are not cheap" (e.g. Transdigm, Amazon). In other words, it's on my doomsday shopping list. If market multiples compress to 2009 levels, I'm in."

 

Interesting how the three companies mentioned there as expensive in 2015 have beat the market since (with TDG you need to remember to include all the large special dividends), with Amazon, the one no doubt considered the most expensive at the time, beating it by the most.

 

Here's the most recently Q for SPGI:

 

http://investor.spglobal.com/Cache/1001235952.PDF?O=PDF&T=&Y=&D=&FID=1001235952&iid=4023623

 

Revenue Increased 8% (6% ex-FX) led by a 25% Increase at S&P Dow Jones Indices Diluted EPS Increased 26% to $1.93

 

Net income increased 23% to $491 million and diluted earnings per share increased 26% to $1.93.

 

Adjusted net income increased 21% to $509 million and adjusted diluted earnings per share increased 24% to $2.00. The adjustments in the first quarter of 2018 were for deal-related amortization.

 

Operating Profit Margin Improved 130 Basis Points to 45%

 

Adjusted Operating Profit Margin Increased 10 Basis Points to 47%

 

Added Leading-Edge Technology and Unique Data Sets with Acquisitions of Kensho and Panjiva

 

Return of Capital: During the first quarter, the Company returned $1.227 billion to shareholders through a combination of $127 million in dividends, $100 million in open market share purchases, and $1 billion in the form of an accelerated share repurchase (ASR) agreement. During the quarter, we received 0.6 million shares from the open market purchases and the initial shares under the ASR of 4.5 million shares. We expect to complete the ASR during the third quarter and receive additional shares at that time.

 

Balance Sheet and Cash Flow: Cash and cash equivalents at the end of the first quarter were $1.8 billion. In the first three months of 2018, cash provided by operating activities was $360 million, cash used for investing activities was $87 million, and cash used for financing activities was $1,316 million. Free cash flow was $277 million, a decrease of $29 million from the same period in 2017 primarily due to legal settlement payments and the $20 million contribution to the S&P Global Foundation. Free cash flow, excluding the after tax payment of legal settlements, was $299 million

 

Outlook: adjusted diluted EPS unchanged with a range of $8.45 to $8.60.

 

http://investor.spglobal.com/Cache/1001236158.PDF?O=PDF&T=&Y=&D=&FID=1001236158&iid=4023623

 

The Indices business grew 25% organically at almost 70% operating margins. Wow.

 

Probably also worth linking to MCO, since this is a bit of a Visa/Mastercard dynamic:

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/mco-moody's/

[CorpRaider]

I do often wonder if maybe one should just go ahead and hop on that ROIC train and let it do the work over time.

[Guest Schwab711]

Nice bump. I was just thinking about how wrong I've been on the index licensing business recently. The DJIA/S&P index licensing business is probably worth more than MSCI (currently trading for $15b). I'm not sure how much lower fees can go for Vanguard/ETFs so it's probably safe to put a high multiple on the income stream, especially given recent growth. If you back out index licensing, SPGI is trading at a marginally lower valuation than MCO. I like MCO the business better (mostly due to structured finance ratings advantage) but S&P is probably a more compelling long at the moment.

 

Adjusted EV/EBIT multiple:

SPGI: ($53b EV - $15b MSCI) / ($3.08b FY18e EBIT - $480m DJIA/S&P EBIT) = 14.6x

MCO: $37.15b EV / $2.09b FY18e EBIT = 17.8x

 

They probably won't help any time soon but I really like the acquisitions of Panjiva and Kensho. From my view, I really like the moves S&P has made with their ancillary businesses (SNL, Panjiva, CIQ, JD Power/Platts, and placing more attention on internal S&P (non-ratings) research).

 

It looks like both S&P and Moody's are reviving the old Dun & Bradstreet model and I think it will be worth it in the long run as China tries to enter the CRA business.

 

Edit: If anyone has a more detailed view on the index licensing business going forward it would be great to hear (long, short, or neutral).

[Liberty]

I agree that MCO is a more pure-play into CRA and thus should be a better business when you account for the "quality dilution" from the other segments, but from a purely empirical point of view, I kind of see it like this:

 

[vinod1]

The DJIA/S&P index licensing business is probably worth more than MSCI (currently trading for $15b).

 

SPGI only owns 73% of the Indexing business, the rest is owned by CME. The indexing business is roughly the same size at both SPGI and MSCI and MSCI indexing segment has slightly higher profitability.

 

I own both MCO and MSCI but am close to exiting MSCI. Love the indexing business though.

 

Vinod

 

[Liberty]

Q4:

 

http://investor.spglobal.com/Cache/1001248254.PDF?O=PDF&T=&Y=&D=&FID=1001248254&iid=4023623

 

http://investor.spglobal.com/Cache/1001248259.PDF?O=PDF&T=&Y=&D=&FID=1001248259&iid=4023623

 

FY2018:

• Delivered 3% revenue growth and 23% adjusted diluted EPS growth

• Generated significant margin improvement in every business

• Reported $2.0 billion in free cash flow, excluding certain items – an 8% increase year-over-year

• Returned $2.2 billion through share repurchases and dividends

• Initiating a new $500 million ASR in the next few days

• Made great strides towards our new Investor Day targets

• Added leading-edge technology and unique data sets with the acquisitions of Kensho, Panjiva, and RateWatch

Q4:

fourth quarter 2018 revenue of $1.54 billion, a decrease of 3% compared to the same period last year as a decline in Ratings revenue, primarily resulting from a decline in global debt issuance, offset revenue increases in the Company's other three businesses. On an organic basis, fourth quarter revenue decreased 4%.

Fourth quarter net income increased 95% to $512 million and diluted earnings per share increased 99% to $2.03. Both increased due to a charge associated with U.S. tax reform included in the prior year quarter as well as productivity improvements and a lower effective tax rate as a result of U.S. tax reform impacting the current quarter.

Adjusted net income for the fourth quarter increased 18% to $559 million due to productivity improvements and a lower effective tax rate as a result of U.S. tax reform. Adjusted diluted earnings per share increased 20% to $2.22 aided by a 2% reduction in diluted shares outstanding.

[Liberty]

Q2: http://investor.spglobal.com/file/Index?KeyFile=404763019

 

Revenue and Operating Profit Grew Across All Four Divisions

Diluted EPS Increased 46% to $3.28; Adjusted Diluted EPS Increased 40% to $3.40

Operating Profit Margin Improved 920 Basis Points to 56.9%

Adjusted Operating Profit Margin Improved 740 Basis Points to 58.7%

Several New Products Launched During the Quarter

Company Refines Planning Scenarios Associated with Managing COVID-19 Risks

Company Increases 2020 Guidance

[Liberty]

New writeup on SPGI and MCO (subscription required):

 

https://www.scuttleblurb.com/spgi_mco/

[Liberty]

https://www.wsj.com/articles/s-p-global-in-advanced-talks-to-buy-ihs-markit-for-about-44-billion-11606697244

 

"S&P Global in Advanced Talks to Buy IHS Markit for About $44 Billion"

[Liberty]

Official:

 

http://investor.spglobal.com/file/Index?KeyFile=406163414

 

http://investor.spglobal.com/Cache/IRCache/2866a537-7455-54b8-b26c-a659c8646c31.PDF?O=PDF&T=&Y=&D=&FID=2866a537-7455-54b8-b26c-a659c8646c31&iid=4023623

 

44bn, all-stock

[Xerxes]

LSE, MSCI and S&P500 Global.

 

I got interested in that sector when LSE bought Refinitiv from Blackstone and Reuters.

Never invested in any of them but man o man all three have been massive compounders.

 

The covid crash was barely a blip for these guys.