By: Kevin Blank, AIM Student at Marquette
University
Disclosure: The AIM International
Equity Fund currently holds this position. This article was written by myself,
and it expresses my own opinions. I am not receiving compensation for it and I
have no business relationship with any company whose stock is mentioned in this
article.
Summary
•
IHS Markit (NASDAQ:INFO) delivers
information services to over 50,000+ customers in business, finance, and
government. The company was created in July 2016 in all stock merger between IHS
Inc. and Markit and has become a global leader in critical information,
analytics, and solutions for major industries and markets.
•
INFO’s business model creates a cycle of profitable growth and reinvestment
capacity through a recurring sales model, profitable incremental growth, strong
cash flow, and multi-billion share repurchase capacity.
•
Merger cost synergies over $125M provide financial flexibility for targeted
investments to realize further value from assets. Projected EBITDA margin
expansion into mid-40%.
•
In the financial services sector, regulatory landscape, changing investment
behavior, changing market structure, and technology advancement are
contributing to overall sector opportunity. IHS Markit can strengthen and
expand information, processing, and solutions offerings.
•
Recent announcement of acquisition of automotiveMastermind (aMM) in Q3,
expanding automotive segment.
Key points: IHS
Markit maintains ~83% recurring revenue that delivers strong and resilient
growth. IHS Markit reaffirmed 2017 guidance for revenue trending above high end
at ~$3,560 million (~4% organic revenue growth) and adjusted EPS trending at
midpoint ~$2.05. IHS Markit introduced 2018 guidance revenue ranging from
~$3,770 - $3,830 million and adjusted EPS ~$2.17 - $2.23.
Merger
synergies are allowing IHS Markit to manage dilution and drive higher adjusted
EPS and free cash flow per share. Since the merger, INFO has been able to
return capital through an attractive share buyback program. IHS Markit is
committed to continue the program in 2018 and beyond. INFO’s balanced revenue
offers 4-6% long term organic growth.
Regulations,
such as MiFID II, drive further investment in best execution, compliance, risk
management, market data and data management. INFO is a leading pricing and
index provider. INFO also offers platforms for derivatives, FX, and loan trade
processing. INFO’s processing investment is delivering more for customers such
as increased functionality and workflow tools. Expansion opportunities exist in
the quality and scope of data allowing for more complete regulatory solutions.
The financial industry has a need to solve regulatory requirements and reduce
costs. IHS Markit has the expertise, technology, and proprietary data that
enables best-in-class data delivery and solutions. IHS Markit is also a leading
platform for economic and country risk analysis. Providing a global perspective
in over 200 countries, from over 400 data specialists, economists, country risk
analysts, and consultants across various industries.
The
acquisition of automotiveMastermind (aMM) complements and strengthens IHS
Markit’s automotive franchise. The acquisition enhances ability to improve
organic revenue growth. AutomotiveMastermind provides auto dealers in the U.S.
with online tools, predictive analytics, and marketing services to help drive new
sales. This will expand IHS Markit’s automotive sales and marketing business
from the OEMs to the dealer market and expands overall addressable automotive
market. IHS Markit purchased 78% of aMM for $392 million and the remaining 22%
to be acquired over the next five years based on a valuation tied to underlying
EBITDA performance.
What has the stock done
lately?
Over
the past month, INFO has risen ~5.65% compared to the Russell Global ex US
1-month total return of 0.51%. There has been a clear recovery of the stock
price after falling September 26, 2017 after beating Q3 EPS estimates by 7.5%
and revenue beating 1.5%. The EPS surprise was driven by an aggressive buyback
of $324 million worth of shares during Q3.
Past Year Performance:INFO
has increased 28.09% year-to-date, compared to the Russell Global ex US total
return of 25.07% YTD. The 52-week range is $34.20 - $48.53.
Source: FactSet
My Takeaway
IHS
Markit is a leader in offering information, processing, and solutions
diversified across industries and customers. Revenue breakdown from financial
services (~34%), transportation (~26%), resources (~25%), and consolidated
markets and solutions (~15%). INFO’s high margins and recurring revenue model
is strengthened by the need for efficient and reliable information solutions. I
recommend that IHS Markit remain in the AIM International Equity portfolio.
Source: FactSet
