S&P Global: A Collection Of Moats

Jan. 15, 2021 9:52 AM ETS&P Global Inc. (SPGI)27 Comments
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RB Equity
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Summary

  • S&P Global is a leading financial information provider with margins that suggest wide moats.
  • The moats are growing as the value of financial data increases in a world driven by algorithms.
  • The recent IHS Markit merger is very intuitive, with "easy" (for me to say) path to synergies.

S&P Global (NYSE:SPGI) has several moats and is becoming very attractive as the share price continues to drift closer to $300. A known compounder, it is worth reviewing where its underlying strength comes from and how sustainable its moats may be.

S&P Global has four business segments, three of which have clear and lasting moats. Listed in the order the company presents each, they are:

Ratings Market Intelligence Platts Indices

Evidence of superior performance is everywhere not hard to find.

Source: S&P Global

Except for Market Intelligence, with a respectable but not remarkable 30% operating profit margin, all other segments show operating profit margins in excess of 50%. Indices shows an almost indecent 70% operating profit margin.

Ratings

This business came under fire following the 2008 GFC. I initiated my position in SPGI shortly after they settled the lawsuits that ensued. Structured finance has never recovered and is unlikely to reach the levels of that time. However, corporate borrowing continued growing.

S&P Ratings has benefited the persistent tailwind of ever-lower interest rates. The low rates have enticed companies and governments to issue record amounts of new debt. This growth will not continue forever, and likely not for long either, but debt will need to get refinanced nevertheless. this potential for growth slowdown may be one of the motivations behind the IHS Markit transaction.

S&P, together with Moody´s and Fitch are the three leading rating agencies. S&P´s position is dominant, with a market share consistently around 80% in the US (+60% in Asia and +70% in the rest of the world). Now, market share in this case relates to debt that is subject to ratings, however sales wins do not unnecessarily translate to a competitor loss.

Source: S&P Global

Driven by institutional investor policies and charters, which often require “investment grade rating by

This article was written by

RB Equity profile picture
834 Followers
Striving to compound knowledge. Long-time fan of Warren and Charlie. Always invert. "To finish first, you must first finish". Investing own and family funds for +20 years. Senior finance roles at public and private corporations for most of that time.

Disclosure: I am/we are long SPGI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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