Why Financial Services Is IHS Markit’s Most Valuable Business

December 13th, 2019 by Trefis Team
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IHS Markit

IHS Markit  (NASDAQ: INFO) is a leading provider of information, research, analytics, and technology, with the company’s clients including the world’s major industries, financial markets, and governments. The company has achieved steady growth in the last couple of years driven by consistent recurring and nonrecurring revenue growth. Although the company has witnessed growth across all its segments, the company’s Financial Services segment has achieved robust growth to become the company’s largest revenue driver. Trefis highlights the importance of its Financial Services segment for IHS Markit in an interactive dashboard.

 

Why Is Financial Services So Important To IHS Markit?

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#1 Financial Services’ Contribution To Total Revenue Has Steadily Increased Over The Last 3 Years And Is Expected To Cross 38% In 2019

  • Financial Services segment has achieved robust growth in the last few years, with revenues increasing from around $450 million in 2016 to more than $1.4 billion in FY 2018 (ending November) at an average annual rate of 78%.
  • This growth has been driven by the merger of IHS with Markit in 2016, and organic growth has been complemented by the acquisition of Ipreo since then.
  • We expect this segment to continue its growth trajectory, with revenues increasing at a rate of 21% to more than $1.7 billion in FY 2019 driven by the index business, Ipreo, and growing compliance requirements in the financial services industry.
  • Notably, the division has continued to witness strong organic growth, with the division recording an organic growth of 7% and 6% in 2017 and 2018, respectively.
  • As a result of the strong organic and acquisitive growth, the division’s contribution to total revenues has more than doubled from 16% in 2016 to 35% in 2018.

#2 Financial Services’ Revenue Growth Has Comfortably Outpaced IHS Markit’s Total Growth Over The Last Couple Of Years

  • IHS has added nearly $1.3 billion to total revenue since 2016 at an average annual rate of 21%.
  • Notably, the Financial Services segment alone has added $970 million to IHS’s total revenue over this period.
  • More than 75% of the company’s incremental revenue growth has come through the Financial Services segment since 2016 – more than making up for the company’s Resource, and Consolidated Markets & Solutions (CMS) segments which have seen revenues remaining largely level since 2016.

 

#3 Notably, growth in revenues for IHS Markit’s competitors in Financial Services space is lower and ranges from -2% to 18%

Additional details regarding trends in revenues of the competitors, Nasdaq, Intercontinental Exchange, and CME Group are available in our interactive dashboard.

 

#4 Financial Services Segment Has Also Been Operating At A Higher Margin

  • IHS’s three-year average EBITDA margin was 38%, almost 440 basis points less than that of the Financial Services’ EBITDA margin of 42.3%
  • The primary reason for this difference can be attributed to the lower profitability of the CMS segment whose EBITDA margin has averaged around 22% over the last three years.
  • Notably, EBITDA margin for the consolidated company as well as for the Financial Services segment have expanded over the last three years.

 

Conclusion

  • Financial Services is IHS’s largest segment – accounting for most of the company’s incremental revenue growth.
  • With a diversified portfolio of products and services, this segment remains pivotal to the company’s long-term revenue growth, profitability improvement and enhanced shareholder returns.
  • Moreover, the company has made huge investments in its pricing and index businesses and should continue to benefit from its development.
  • Finally, IHS’s latest acquisition, Ipreo, is growing at a strong run rate which should further aid this segment’s growth in the coming years.

Per Trefis estimates, IHS Markit’s adjusted EPS for 2019 is likely to be $2.54. Taken together with a P/E multiple of 27.9x, this works to a fair value of $71 for IHS Markit’s Stock which is slightly below the current market price.

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