Tuesday, February 25, 2020

A Current AIM International Equity Holding: IHS Markit Ltd. (INFO, $80.37): “Information Overload”

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.


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