Byte # 31: Follow-up on my last Byte # 30 on Investing in SPGI and MSCI
Dear Readers and Subscribers,
A very Good Morning to you all! I hope you had a great Thanksgiving Week and now back into the game!
A very good morning to you all! I hope you had a wonderful Thanksgiving week and are now fully back in the groove.
Today’s Byte is a quick follow-up to my last one - Food for Thought: Investing in the Backbone of US & Global Markets: SPGI & MSCI.
I recently came across the latest episode of the Intrinsic Value Podcast on S&P Global (SPGI), released this past Sunday, and felt it was worth sharing with you. A big thank you to the Intrinsic Value Podcast team - Daniel and Shawn - for putting together such an excellent episode. Frankly, I couldn’t have done justice to the depth and clarity they brought to this discussion.
After listening to it, I’m even more confident that SPGI is a high-quality, wide-moat business worth owning. Below are the key takeaways I’ve summarized, though I strongly recommend listening to the full episode:
World‑class information franchise with multiple oligopoly businesses (Ratings, Market Intelligence, Indices, Commodity Insights, Mobility) and structurally high margins and FCF.
Ratings is the crown jewel: entrenched oligopoly with Moody’s/Fitch, very high pricing power, >60% margins, and strong cyclical upside when debt issuance rebounds as rates fall. Given the falling interest rate environment, the business has tail winds behind it.
Market Intelligence (Capital IQ) is a sticky, mostly subscription business built on proprietary, curated data; AI is more likely to enhance workflows than replace the need for such platforms.
Indices is only a small share of revenue but a big contributor to profit, riding the long‑term shift from active to passive, though exposed to fee compression and some direct‑indexing risk.
Commodity Insights (Platts) provides mission‑critical commodity benchmarks with quasi‑monopolistic positioning, ~90% subscription revenue, and very high switching costs.
Mobility (incl. Carfax) is a high‑quality but non‑core auto data asset being spun off, with an expected standalone value in the low‑teens billions of dollars.
Long‑term record: ~7–10% revenue growth, mid‑teens EPS growth, FCF margins in the mid‑30s, and ROIC still strong after the IHS Markit acquisition once you adjust for goodwill.
Exceptional cash‑return profile: 50+ years of 10%+ annual dividend growth, ongoing buybacks, and a stated goal to return ~85% of FCF to shareholders.
Stock de‑rated from >40x P/E in 2021 to a more normal multiple; current FCF yield around 3.5–4% is roughly in line with its long‑term median rather than a clear bargain.
AI introduces some risk, but SPGI appears well-positioned to leverage AI to its advantage.
Base case is a high‑visibility compounder (7–8% revenue, margin expansion toward ~50%, 1–2% annual buybacks), but upside depends heavily on what multiple the market is willing to pay, so it looks like a high‑quality watchlist name rather than an obvious “table‑pounding” buy today.
Risk–Reward Assessment for the Next 5 Years:
Assuming 10% annual EPS growth over five years and a 30x P/E yields a forecasted price of $664, about 33% above today’s ~$498.
SPGI historically trades at higher multiples (5-year average P/E: 36.4). Using a 35x multiple gives a forecasted price of $774, a 55% upside - but again, heavily dependent on future market multiples.
With today’s P/E near 36.2, I would prefer waiting for an entry point in the $400–$470 range and gradually nibbling when the opportunity arises.
I’ll leave you with this thought: SPGI is a phenomenal business - but at today’s valuation, patience may be the best strategy. Let’s see what verdict the market ultimately delivers.
Let me know your thoughts on the company and whether you believe it’s still a good buy at current levels.
Cheers,
Your friend in investing,
Pooja
