Earnings Analysis For IHS Inc.

Sep.21.12 | About: IHS Markit (INFO)

IHS Inc. Cl A (IHS) reports preliminary financial results for the quarter ended 2012-08-31.

IHS Inc. Cl A recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. CapitalCube's analysis is based on the company's performance over the last twelve months (unless stated otherwise).

IHS Inc. Cl A's analysis versus peers uses the following peer-set: Thomson Reuters Corporation (NYSE:TRI), McGraw-Hill Cos. (MHP), Reed Elsevier N.V. ADS (NYSE:ENL), MSCI Inc. (NYSE:MSCI), Gannett Co. Inc. (NYSE:GCI) and Morningstar Inc. (NASDAQ:MORN). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million) 2012-08-31 2012-05-31 2012-02-29 2011-11-30 2011-08-31
Revenues 385.0 387.2 342.7 365.6 340.5
Revenue Growth % (0.6) 13.0 (6.3) 7.4 4.7
Net Income 44.1 44.2 23.5 26.2 39.6
Net Income Growth % (0.3) 88.2 (10.4) (33.8) 2.2
Net Margin % 11.4 11.4 6.8 7.2 11.6
ROE % (Annualized) 11.6 12.2 6.7 7.7 11.9
ROA % (Annualized) 5.3 5.5 3.0 3.5 5.9
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Valuation Drivers

IHS Inc. Cl A's current Price/Book of 4.8 is about median in its peer group. The market expects IHS Inc. to grow faster than the median of its chosen peers (PE of 55.8 compared to peer median of 22.0) and to improve its current ROE of 9.4% which is below its peer median of 13.4%. Thus, the market seems to expect a turnaround in IHS Inc.'s current performance.

The company's asset efficiency (asset turns of 0.5x) and net profit margins of 9.3% are both median for its peer group. IHS Inc.'s net margin is its lowest relative to the last five years and compares to a high of 14.0% in 2009.

Economic Moat

The company has achieved better revenues growth than its chosen peers (year-on-year change in revenues of 23.3%) but its earnings growth performance has been below the median (change in annual reported earnings of -4.3% compared to the peer median of 0.8%). This suggests that, compared to its peers, the company is focused more on top-line revenues. IHS Inc. is currently converting every 1% of change in revenue into -0.2% change in annual reported earnings.

IHS Inc.'s return on assets is now less than its peer median (4.3% vs. peer median 6.2%) in contrast to its returns over the past five years which were around the peer median (7.1% vs. peer median 7.2%). Recent performance suggests that the company's historical competitive advantage is slipping away.

The company's gross margin of 58.5% is around peer median suggesting that IHS Inc.'s operations do not benefit from any differentiating pricing advantage. In addition, IHS Inc.'s pre-tax margin is less than the peer median (11.1% compared to 16.4%) suggesting relatively high operating costs.

Growth & Investment Strategy

IHS Inc. has grown its revenues faster than its peers (16.2% vs. 6.8% respectively for the past three years). The market also sees relatively higher long-term growth prospects for the company, giving it a better than peer median PE ratio of 55.8. Overall, we classify the company's growth prospects as superior relative to its peers.

IHS Inc.'s annualized rate of change in capital of 34.6% over the past three years is greater than the peer median of 16.9%. However, this investment level has only generated a peer median return on capital of 10.6% averaged over the same three years. This median return on an above median capital investment suggests the company is over-investing.

Earnings Quality

IHS Inc.'s net income margin for the last twelve months is around the peer median (9.3% vs. peer median of 11.3%). This average margin combined with a level of accruals that is around peer median (13.3% vs. peer median of 11.4%) suggests there possibly isn't too much accrual movement flowing into the company's reported earnings.

IHS Inc.'s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts

Company Profile

IHS, Inc. provides information and insight in critical areas that shape business landscape, including energy and power; design and supply chain; defense, risk, and security; environment, health, and safety; sustainability; country and industry forecasting; and commodities, pricing, and cost. Its three reporting segments are: Americas, which includes the United States, Canada, and Latin America; EMEA, which includes Europe, the Middle East, and Africa; and APAC, or Asia Pacific. The company was founded by Richard O'Brien in 1959 and is headquartered in Englewood, CO.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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