IHS Markit Ltd. (INFO, $80.37): “Information Overload”
By:
Sean O’Leary, AIM Student at Marquette University
Disclosure:
The AIM 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, Inc. (NYSE:INFO) participates in the provision of
information, analytics, and solutions to customers in the finance, business,
and government sectors in the United States, Europe, and Asia. IHS Markit
operates in four segments of business financial services, transportation,
resources, and consolidated markets & solutions.
• INFO products continue
to face little direct competition, in the strong ability of creating
information and data set’s that are difficult to replicate. INFO has an
economic Moat through having customers that don’t leave because of the high
switching costs to competitor products and quality products that INFO provides.
• Transportation segment
(28% of total revenue in 2019) continues to be attractive, particularly through
new markets in the automotive lineup that will be boosted through the Carfax
lineup that includes vehicle listing and finance-related products.
• Management has
indicated that there are struggles in facing long selling cycles to secure new
contracts that require high amounts of resources and long lead times.
• INFO has about 85% of
revenue coming from subscriptions that represent that customers are being loyal
and are sustaining relationships.
Key
points:
IHS Markit remains a stock
that has upside potential. Through the three main segments of business that
INFO operates in, each has potential for growth. The financial services segment
(39% of total revenue) shows promise in growth though its new lineup of
products that are targeting primary issuance and alternative investments that
complement INFO’s existing products. The Transportation segment (38% of total
revenue) is predicted to post 7%-8% average organic growth till 2024. With the
automotive products expansion and increased margin INFO will see growth through
this segment of business. Growth will be seen in the new agribusiness unit that
will complement the alternative energy offerings that INFO has in the resources
segment (21% of total revenue).
INFO
could face difficulties in a bear financial market through consumers
conservative mindset that reduces client’s openness to new indexes and other
investor facing products. This may decrease the amount of funds available for
INFO’s trading system and enterprise risk management improvements and cause
slow growth in new products they are trying to offer.
Recurring
fixed revenue and variable revenue is approximately 85% of total revenue in
2019. With this mind, revenue is usually stable and easy to predict. This
allows for INFO to develop strong long-term relationships with its customers
and with the high cost of changing to a competitor product this allows INFO to
have an economic moat currently and in the future.
The
acquisition of Ipreo in mid-2018 will continue to produce cross-selling
opportunities through leveraging its financial services ability to sell more
existing products and create new products for capital and alternative investment
markets. Through the ability to have a more comprehensive suite of products INFO
has more valuable offerings that are embedded into client processes and
long-term contracts.
What
has the stock done lately?
Since
INFO was added to the portfolio at a price of $36.50 on September 23, 2016, it
has risen 120% to $80.37. INFO has been recently beating earnings estimates and
about a week ago beat there Q4 2019 estimates that helped stock performance. In
the past three months INFO is up 12% through strong results in the end of Q3
and in Q4 and strong market performance.
Past
Year Performance:
Since last year
INFO has increased 50.95% in value. From November 2018 to November 2019 sales
have increased 10.11% and net income decreased by 7.30% due to increases in the
amount of taxes that were paid. Net EBITDA Margin increased by 2.35% along with
operating margin (EBIT) being up 2.77% due to increased revenues and lower cost
initiatives. Enterprise Value / Sales
was up 1.02 on the year representing stronger growth in market value than sale
growth. Due to lower labor inflation, SG&A expenses only grew .90% compared
to sales growth of over 10%, which helped improve operating income margins.
Source:
FactSet
My
Takeaway
IHS
Markit competitive advantage in its ability to provide products and services
that are hard to imitate and compete with give INFO a big advantage. With
majority revenues coming from subscriptions, INFO has fixed revenues that will
allow for predictable and sustainable growth. INFO has growth opportunities
with new products being offered in their financial segment of business that
will allow for new markets to be a part of. These new products lines could have
negative side effects as well if markets and consumers outlooks are negative,
INFO’s products are very cyclical and can decline with the markets. INFO has
been a strong performer and has potential to still have strong growth in the
near future. I recommend that IHS Markit remain in the International Equity
Portfolio.
Source:
FactSet
