S&P Global Inc. (NYSE: SPGI) is a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
It has four main businesses: Ratings, Market Intelligence, Platts, and indices.
The company derives almost half of its revenue from ratings.
S&P Global’s ratings business provides independent credit ratings, analytics, and research..
Next, the market intelligence segment provides multi-asset-class data, research and analytical capabilities for the investment community to identify investment opportunities, assess risk, perform valuations and track performance.
Meanwhile, the Platts division provides essential price data, analytics, and industry insight which enable the commodity and energy markets to perform with greater transparency and efficiency.
Finally, the S&P Global Dow Jones Indices business provides investors with transparent benchmarks and earns its keep mainly from asset linked fees from exchange traded funds (ETFs) and mutual funds and other subscription fees.
Steady, dependable performance
S&P Global has been a steady compounder. It has delivered impressive revenue, net income and free cash flow growth over the past five years:
- 5-year revenue growth of 31.5% (compound annual growth rate or CAGR of 5.6%)
- 5-year Adjusted Net Income growth of 99.3% (CAGR of 14.8%) and,
- 5-year free cash flow growth of 167.6% (a CAGR of 21.8%)
While the company has a debt load of US$4.1 billion, it has about US$4.12 billion in cash and generated US$3.49 billion of free cash flow in its latest fiscal year.
The business is highly profitable.
In its fiscal 2021 second quarter (2Q2021), adjusted net income increased 6% year on year to US$875 million and adjusted diluted earnings per share also increased by 6% year on year to US$3.62. Operating margin stood at 54.8%.
Shareholder-friendly organisation
S&P Global is also a dividend aristocrat, defined as a company that has paid increasing dividends for at least 25 consecutive years.
It holds a proud record of 47 consecutive years of dividend increases.
The company also has an active share buy-back policy, and as of 31 December 2020, 30 million shares remained available under the 2020 Repurchase Program.
During the three years ended 31 December 2020, the company has returned approximately US$5.8 billion to shareholders through a combination of share repurchases and quarterly dividends.
The Board of Directors recently approved an increase in the quarterly stock dividend from US$0.67 per share to US$0.77 per share, a 15% year on year jump.
Growth prospects
In January 2019, S&P Ratings (China) Co., Ltd., a wholly owned, indirect subsidiary of S&P Global, became the first wholly foreign-owned credit rating agency licensed to operate domestically in China.
Given that China’s domestic onshore bond market is one of the largest bond markets in the world, the entry to the China market presents significant opportunities for the company as China’s debt market continues to develop in the next five years.
To expand its addressable market, S&P Global has made a series of acquisitions in the past five years to drive business growth. The acquisition of the ESG (environmental, social and governance) ratings business from RobecoSAM enhanced its capability to evaluate sustainability practices.
This acquisition would bolster its position as the premier resource for essential ESG insights and product solutions for its customers. Through this acquisition, it would be able to offer its customers even more transparent, robust and comprehensive ESG solutions.
In November 2020, the company announced that it would acquire IHS Markit (NYSE: INFO).
The digital transformation in the past few years has expanded the market for financial information, with increasing demand for more complex products and algorithm-driven strategies from market participants.
Following the merger, S&P will be able to leverage the respective strengths of both companies in information, data science, research and benchmarks to better serve its customers.
The deal is likely to close in the second half of 2021, subject to regulatory approval.
Get Smart: An attractive business
The stability of its businesses makes S&P Global an attractive investment for long-term investors.
The industry is heavily regulated and this fact makes it difficult for new entrants to break into this lucrative business.
With a history of dividend hikes and shares repurchases, S&P Global is a steady performer which has delivered a total return of 1,260% in the past decade to its shareholders.
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Disclaimer: Sunny Tan does not own any of the companies mentioned.
