Monday, December 18, 2017

A current AIM International Fund Holding: IHS Markit (INFO) by Kevin Blank. "The Information Powerhouse"

IHS Markit (INFO, $45.13): “The Information Powerhouse”

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.


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