S&P Global as the market leader dominates the rating market with a 42 percent market share and high profit margins. (Photo: Freepik)
S&P Global, together with Moodys, has a quasi-duopol in the rating market with a 75 percent market share. With 42 percent, S&P is clear. The combination of pricing power, recurring income and the indispensable market position has brought shareholders 11.8 percent annually in the past 40 years. In the current market turbulence and uncertainties, S&P offers stability, growth and quality for investors. Is S&P suitable as an investment?
Business model with high margins and recurring sales
S&P Global Inc. is much more than a rating agency today. The company is an indispensable partner for rating agencies, asset managers, regulatory authorities and institutions worldwide for financial and market data as well as analyzes.
The 5 central business areas have been created in recent decades through strategic acquisitions and corporate developments. Together they deliver a very diversified source of income.
- Market analyzes (32 percent of sales) are based on subscriptions and provide economic data, tools and company profiles. The competition includes Factset, Moody’s Analytics and Bloomberg.
- Credit ratings (31 percent) secure stable income through regular fees.
- Raw material data (15 percent) support trading decisions in the energy and raw material sector.
- Indices (12 percent) Like the S&P 500, license fees from ETFs and financial products generate.
- Mobility data (11 percent) were integrated through the takeover of IHS Markit and offer extensive analysis capacities for automotive markets. The mobility segment is to be split off over the next 12 to 18 months, so that only the data-controlled IHS areas remain.
The operative margin of S&P Global was recently 43 percent. After the sale of the mobility division, the operational margin will increase by a further 2 percentage points. Indices and credit rating achieve particularly high margins with 71 and 66 percent, while the personnel -intensive market analysis recently only reached 18 percent. The average growth of the segments is 9 percent.
Management competence with clear vision as a data supplier
Martina Cheung has been serving as CEO since 2024. She has been in the company since 2010 and was previously responsible for Ratings and Market Intelligence. According to experts, Cheung is considered a strong strategist. It has the vision of providing the crucial information, making markets more transparent, opening opportunities and enabling sustainable growth.
A prime example of their strategic foresight was the greatest takeover of the company history with the acquisition and successful integration of IHS Markit. This resulted in a powerful platform for market data and analyzes with enormous scalability. The spin-off of the mobility area strengthens the focus on the remaining divisions of energy, finance and technology.
The corporate culture benefits from initiatives such as “People First”, which rely on employee loyalty, innovative ability and sustainable growth. The satisfaction of employees on various evaluation platforms is impressive.
High goodwill, but cash flow powerhouse
The IHS Markit takeover has led to a high goodwill load. Since this purchase was a strategic step to further expand the market position as a data supplier, it is unlikely that this additional goodwill will have to be written off in the future.
The net debt rate is 1.45 and the high free cash flow of 25 to 40 percent also offers financial flexibility. It not only opens up plenty of opportunities for investments, but also for Dividend growth. S&P Global has been increasing the dividend for over 50 years. The current dividend yield is only 0.7 percent, but the payout ratio is 28 percent and the increase rate is 10 percent on average.
S&P Global: Evaluation and conclusion
S&P Global is the market leader and irreplaceable in the financial industry. Due to this market position, a higher rating is understandable. Still: that Course-profit ratio (KGV) is 30 and above the historical average of 24. There was no margin expansion or an acceleration of profit growth. The core business in the area of ​​credit ratings depends heavily on the global bond and refinancing market.
External factors such as trade conflicts or protectionist measures can slow down the economic dynamics and reduce the number of new emissions. The index business is also susceptible to economic weaknesses or in market corrections, since investments in ETFs and funds usually decrease in such times. S&P Global remains linked to the overall market environment.
The share is suitable for quality or dividend growth investors for the watchlist or as a savings plan share. In the current market environment, there seem to be better chances with similar risks.
Disclaimer:
No investment advice. No call to buy or sell securities.