S&P Global (NYSE:SPGI) is simply a starring supplier of fiscal marketplace data, analytics software, and research. The institution serves 99% of the Fortune 500 and has implicit 13,000 customers globally. S&P Global is presently facing short-term headwinds from a tepid macroeconomic situation that has impacted the "issuance" market, which refers to the contented of caller bonds, securities etc. The bully quality is economical conditions thin to beryllium cyclical and absorption is estimated to person deployed ~$12 cardinal for stock buybacks successful 2022. In addition, the "Big Data" manufacture was valued astatine $162.6 cardinal successful 2021 and is forecast to turn astatine a coagulated 11% compounded yearly maturation complaint [CAGR], reaching $263.4 cardinal by 2026. S&P Global is poised to payment from this manufacture maturation arsenic a starring information provider. In this post, I'm going to revisit its concern model, financials, and valuation, let's dive in.
S&P Global's concern operates crossed galore cardinal concern segments which include:
- S&P Global Ratings
- S&P Global Market Intelligence
- S&P Global Platts
- S&P Commodity Insights
- S&P Global Mobility
- S&P Dow Jones Indices
The institution is astir well-known for its Global ratings concern which is 1 of the "big three" recognition rating agencies on with Moody's and Fitch. In addition, its S&P Dow Jones Indices conception created the Dow Jones concern mean and of course, the "S&P 500" index, which is highly regarded arsenic the champion mode to way the apical 500 U.S companies.
S&P Global generates its gross done a assortment of methods, specified arsenic licensing, consulting, research, and of people its ratings & indices. The institution is good diversified crossed aggregate industries and adjacent has a beardown Private Markets offering. According to a survey cited by S&P Global, Private Capital Assets nether absorption [AUM] are forecast to beryllium worthy implicit $18 trillion by 2026.
S&P Global reported mixed financial results for the 3rd 4th of 2022. Revenue was $2.86 billion, which missed expert estimates by $57.82 cardinal and declined by 8% twelvemonth implicit year. This was driven by a fewer factors, firstly if we instrumentality into relationship overseas speech complaint headwinds, gross lone declined by 6% twelvemonth implicit year, which is somewhat better. S&P Global generates three-quarters of its gross successful U.S. dollars and frankincense it is reasonably protected against overseas speech headwinds. As the U.S. dollar is presently beardown comparative to astir different currencies. In addition, the institution has a hedging programme successful place, which helps to easiness FX speech rates.
In S&P's halfway business, 4 of its six concern units reported maturation which is positive. However, its Global Ratings concern reported a important gross diminution of 33% twelvemonth implicit year. This was chiefly caused by a challenging "issuance" cycle, which was driven by the macroeconomic environment. A affirmative is the system tends to beryllium cyclical and frankincense I expect a rebound successful this conception agelong term. It besides should beryllium noted that 84% of S&P's gross is recurring by quality and this accrued by 2% twelvemonth implicit year. Recurring gross and S&P's established and divers lawsuit basal means consistency is apt long-term.
S&P Global Market Intelligence accrued gross by 4% twelvemonth implicit year. This was driven by a coagulated commercialized pipeline of opportunities, arsenic amazingly companies privation much information during times of economical uncertainty. Its equities, information & analytics merchandise accrued its gross by 12% twelvemonth implicit year.
In addition, its Trucost, biology information product, reported beardown gross maturation of 39% twelvemonth implicit year, connected an adjusted basis. Global Warming is becoming an adjacent greater situation for companies and the world. According to a survey by S&P Global, 66% of companies person astatine slightest 1 plus nether precocious carnal risk, this could beryllium from an earthquake, hurricane, etc. It has besides been forecast that companies volition person an estimated $283 cardinal successful "Carbon pricing risk" by 2025.
S&P's Commodity insights conception was bolstered arsenic a result of its immense $140 cardinal merger IHS Markit completed successful aboriginal 2022. In the 3rd quarter, this conception reported gross maturation of 5% twelvemonth implicit year, which was positive. There are beardown synergies betwixt the Market quality and Commodity insights segment, which frankincense offers a fig of cross-selling opportunities. In the 3rd 4th of 2022, the institution generated implicit 3,000 cross-selling opportunities which were a beardown affirmative and a partial indicator that the merger has been successful. Its Platts Dimensions SaaS merchandise for commodity markets was launched conscionable 1 twelvemonth agone and has accrued its users by implicit 4 times since its launch. Its progressive users person besides doubled successful the past 6 months alone. In the 4th quarter, absorption is expecting a beardown rebound successful its desktop business, which is besides different affirmative information point.
Moving onto its different segments, its planetary mobility concern accrued its gross by a coagulated 8% twelvemonth implicit year. This was driven by the security underwriting industry, which showed spot with beardown request for CARFAX, its precocious acquired merchandise for checking conveyance history.
Its indices concern besides generated beardown results which bushed absorption expectations and were a astonishment fixed the existent banal marketplace environment. Specifically, its exchange-traded derivatives accrued non-GAAP gross by a coagulated 40% twelvemonth implicit year. In addition, its CDS indices accrued non-GAAP gross by 66% twelvemonth implicit year. In the 3rd quarter, a caller S&P planetary lawsuit (a Japanese plus manager), launched the first-ever cross-asset ETF successful Japan. This was based upon the iBoxx Fixed Income and the S&P Dow Jones Equity Indices. "Cross asset" indices are a reasonably caller but increasing manufacture and 1 S&P planetary origin pat into, fixed its beardown marketplace position.
Its Engineering Solutions reported a mediocre 4th with an 8% gross decline. This was driven by the chiefly antagonistic timing of a caller Boiler Pressure Vessel Code (BPVC), which caused a 63% diminution successful non-subscription revenue. Given 94% of Engineering solutions gross is recurring, I don't ideate this diminution volition beryllium a large contented agelong term.
Onto profitability, S&P planetary reported GAAP net per stock of $1.82, which missed expert estimates by $0.12 and declined by an oculus watering 44% twelvemonth implicit year. Its adjusted operating nett was somewhat amended with conscionable a 12% diminution reported to $1.3 billion. This was chiefly driven by the aforementioned diminution successful Ratings conception revenue. As this is simply a high-margin portion of the concern (57.9% successful TTM), the interaction was substantial. A affirmative is I expect the Rating conception to rebound, with economical conditions and accrued Issuance, arsenic I discussed prior. S&P Global indicated that the planetary issuance marketplace was down astir 19% twelvemonth implicit twelvemonth successful 2022, aft a large 22% roar successful 2020.
S&P Global has $1.387 cardinal successful currency and short-term investments connected its equilibrium sheet. The institution does person reasonably precocious indebtedness of $11.5 cardinal but the immense bulk ($10.7 billion) is semipermanent debt.
In its third-quarter net call, absorption stated:
"We'll not beryllium discussing our expectations for 2023 connected this call, but we volition beryllium intimately monitoring some the interior and outer indicators of our concern implicit the coming months"
This is understandable but not truly adjuvant erstwhile it comes to valuing the company, truthful I volition usage my ain forecasts successful the adjacent section.
In bid to worth S&P Global, I person plugged its latest financials into my discounted currency travel valuation model. I person forecast 5% gross maturation for adjacent year, which is reasonably optimistic fixed the forecasted recession successful 2023 and anterior maturation complaint of antagonistic 8% twelvemonth implicit year. In years 2 to 5, I person forecast 10% gross maturation per twelvemonth which is based upon the precocious extremity of its historical maturation rates which scope betwixt 3% and 11% since 2012. I expect this maturation to beryllium driven by improved economical conditions on which should effect successful an improving issuance manufacture and frankincense an betterment successful its Global Ratings.
In addition, I person forecast an summation successful its already precocious operating borderline from 40.39% to 45%. I expect this to again beryllium driven by a rebound successful its standing segment, which is the second-highest borderline portion of the business. I besides forecast continued cross-selling betwixt its Market Intelligence and Commodity products.
Given these factors I get a just worth of $319.62 per share, the banal is trading astatine $354 per stock and it frankincense is ~10% overvalued. This is expected for a institution of specified precocious quality, with an established lawsuit basal and barriers to entry. As mentioned successful the concern exemplary segment, the institution is 1 of the 3 large recognition standing providers.
As an other information point, the banal trades astatine a P/E ratio = 30.2, which is 5% cheaper than its 5-year average. In addition, it is trading astatine a just worth comparative to its historical terms to income ratio = 10. A affirmative is S&P Global trades astatine a somewhat cheaper valuation than recognition standing bureau rival Moody's, which trades astatine a PE ratio = 28.25.
Many analysts person forecast a recession successful 2022, and frankincense this is expected to continually interaction the ratings conception of S&P Global. Although arsenic mentioned prior, economical conditions thin to beryllium cyclical.
S&P Global is simply a starring marketplace information supplier and recognition standing agency. The institution is facing headwinds from pugnacious economical conditions currently, but I judge this is lone a abbreviated word issue. S&P Global has a strong, precocious prime lawsuit basal serving the bulk of the Fortune 500. In addition, the bulk of its gross (84%) is recurring, which is large for consistency. The lone contented with S&P Global is its valuation is reasonably high, according to my intrinsic valuation model. This is expected owed to the prime of the institution but fixed the fig of marketplace opportunities, I volition statement this banal arsenic a "hold" for present and 1 for the ticker list.
This nonfiction was written by
Senior Investment Analyst for Hedge Funds. Interviewed Hedge Fund Managers and CEO's. Investment Strategy: Focus connected Deep Dive Valuation, G.A.R.P (Growth astatine a Reasonable Price). Masters successful Equity Valuation, 755+ Companies Analysed.
Disclosure: I/we person nary stock, enactment oregon akin derivative presumption successful immoderate of the companies mentioned, and nary plans to initiate immoderate specified positions wrong the adjacent 72 hours. I wrote this nonfiction myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary concern narration with immoderate institution whose banal is mentioned successful this article.