IPO Preview: Markit Ltd.

| About: IHS Markit (INFO)

Summary

MRKT is a leading global diversified provider of financial information services, founded in 2003.

MRKT has been consistently profitable, and Q1’ 14 revenue increased 14% to $259 million.

Annualizing Q1 ’14 earnings the P/E is 26.9, but the adjusted P/E is 14.7.

Based in New York, NY, Markit Ltd. (MRKT) scheduled a $1.1 billion IPO on the Nasdaq with a market capitalization of $4.3 billion at a price range midpoint of $24 for Thursday, June 19, 2014.

The full IPO calendar is available at IPOpremium

SEC Documents

Manager, Joint managers: BofA Merrill Lynch, Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley, UBS Investment Bank, BNP Paribas, Jefferies, RBC Capital Markets, RBS, TD Securities

Co-Managers: None

End of lockup (180 days): Tuesday, December 16, 2014

End of 25-day quiet period: Monday, July 14, 2014

Summary

MRKT is a leading global diversified provider of financial information services.

MRKT's principal competitors for its Information division products and services are Bloomberg L.P., FactSet, Interactive Data Corporation and Thomson Reuters Inc.

The principal competitors for MRKT's Processing division products and services are Bloomberg L.P., IntercontinentalExchange, Inc. and Traiana, Inc.

MRKT has been consistently profitable, and Q1' 14 revenue increased 14% to $259 million. Profit attributable to shareholders declined to 15% from 22%.

Annualizing Q1 '14 earnings the P/E is 26.9, but the adjusted P/E is 14.7.

100% of proceeds to shareholders.

Valuation

Glossary

Valuation Ratios

Mrkt Cap (MM)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Q1 '14

         

Markit Ltd.

$4,296

4.1

26.9

2.0

-7.1

26%

P/E based on adj earnings

14.7

     
             
Click to enlarge

Conclusion

The rating on MRKT is buy.

100% of the IPO goes to selling shareholders, not a positive.

However, The Canada Pension Plan Investment Board (CPPIB) has indicated an interest in purchasing up to $450 million common shares at the initial public offering price, which would be 41% of the IPO.

Annualizing Q1 '14 adjusted profits the P/E is 14.7, which should be attractive to institutional investors who want to participate in the segment.

95% of revenue is recurring, a big plus.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

MRKT is a leading global diversified provider of financial information services.

MRKT's offerings enhance transparency, reduce risk and improve operational efficiency in the financial markets.

Since MRKT launched its business in 2003, it has become deeply embedded in the systems and workflows of many of its customers and continue to become increasingly important to its customers' operations.

MRKT leverages leading technologies and its industry expertise to create innovative products and services across multiple asset classes. MRKT provides pricing and reference data, indices, valuation and trading services, trade processing, enterprise software and managed services. MRKT end-users include front and back office professionals, such as traders, portfolio managers, risk managers, research professionals and other capital markets participants, as well as operations, compliance and enterprise data managers.

MRKT is highly responsive to evolving industry needs and work closely with market participants to develop new products and services.

MRKT has over 3,000 institutional customers globally, including banks, hedge funds, asset managers, accounting firms, regulators, corporations, exchanges and central banks.

For the year ended December 31, 2013, 49.9% of MRKT's revenue came from customers in the United States, 40.3% from the European Union and 9.8% from other geographic areas.

Recurring income

For the year ended December 31, 2013, MRKT generated 50.6% of its revenue from recurring fixed fees and 45.3% from recurring variable fees.

For the three months ended March 31, 2014, MRKT generated 51.7% of its revenue from recurring fixed fees and 43.3% from recurring variable fees.

For the years ended December 31, 2011, 2012 and 2013 and the three months ended March 31, 2014, MRKT generated revenue of $762.5 million, $860.6 million, $947.9 million and $259.4 million, respectively.

MRKT generated profit attributable to equity holders of $125.8 million, $125.0 million, $139.4 million and $39.8 million, and Adjusted EBITDA of $305.0 million, $358.2 million, $421.3 million and $116.7 million for the years ended December 31, 2011, 2012 and 2013 and the three months ended March 31, 2014, respectively.

MRKT's Adjusted EBITDA margin for the year ended December 31, 2013 was 45.6%, reflecting the operating leverage inherent in its business model and its culture of cost management.

Dividend Policy

No dividends are planned.

Intellectual Property

As of December 31, 2013, MRKT has registered 30 U.S. trademarks, including "MARKIT," "IBOXX," "ITRAXX" and "CDX," and has filed one trademark application with the U.S. Patent and Trademark Office.

As of December 31, 2013, MRKT has also registered over 200 trademarks, including "MARKIT," "PMI," "IBOXX," "ITRAXX" and "CDX," in various other jurisdictions throughout the world. In addition, MRKT has registered domain names covering many of its marks, including markit.com.

Competition

MRKT's principal competitors for its Information division products and services are Bloomberg L.P., FactSet, Interactive Data Corporation and Thomson Reuters Inc.

The principal competitors for MRKT's Processing division products and services are Bloomberg L.P., IntercontinentalExchange, Inc. and Traiana, Inc.

MRKT's Solutions division products and services compete with firms such as Deloitte, GoldenSource, IBM Algorithmics and Intralinks Holdings, Inc.

5% stockholders

Bank of America Corporation 8.13%

Deutsche Bank AG 5.73%

Esta Investments Pte Ltd 10.47%

General Atlantic Partners Tango, L.P. 11.50%

The Goldman Sachs Group, Inc. 5.54%

JPMorgan Chase & Co. 8.24%

Markit Group Holdings Limited Employee Benefit Trust 12.46%

William E. Ford 11.50%

Use of proceeds

The selling shareholders, including certain employees and members of MRKT's management, will receive all of the net proceeds from the sale of the common shares offered. MRKT will not receive any proceeds from the sale of common shares in this offering.

Disclaimer: This MRKT IPO report is based on a reading and analysis of MRKT's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.