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S&P Global Inc. (SPGI)

Updated: Feb 18



Business Description

S&P Global provides data and benchmarks to capital and commodity market participants. In 2021 and excluding IHS Markit, the S&P ratings business was over 45% of the firm's revenue and over 55% of operating income; it is the largest credit rating agency in the world. The firm's other segments include market intelligence, indexes, and Platts. Market intelligence provides desktop tools and other data solutions to investment banks, corporations, and other entities. Indexes provides benchmarks for financial markets and is monetized through subscriptions, asset-based fees, and transaction-based royalties. Platts provides benchmarks to commodity markets, principally petroleum.


Analyst Notes


There are only a few businesses in the world that pass the ‘100 year’ test. SPGI is one of them.

The company was founded by James H. McGraw and John A. Hill in 1917. S&P Global has become a leading provider of credit ratings, benchmarks, and analytics in the global capital and commodity markets. Its rich history and acquisitions have contributed to its success as a leading provider of financial information and analytical tools.

A credit score is really important and serves a crucial function in helping creditors decide whom to lend to. It’s important to people, but especially to corporations and countries.

And if credit scores are so important, then the businesses behind calculating them are also considered vital. For a credit score to be taken seriously, it must be issued from a trusted, reliable source that has years of data to crunch and a team of experts to analyze and compute an appropriate credit score. This is what the SPGI’s brand stands for.


Moats Include

  1. RegulatoryProtection

  2. Time in Market

  3. NetworkEffects

  4. SwitchingCosts

  5. Brand


Some Concerns

  1. Durable business, but cyclical.

  2. Tied to macro metrics like global interest rates and economic growth.

  3. IHS Markit’s acquisition has severely brought down returns on capital. It is a major test for management to see whether the investment can earn over and above its cost of capital.

  4. Business model has inherent conflict of interest, bringing into question the objectivity of ratings. How are credit rating agencies expected to provide unbiased, fair ratings to the companies that are its own customers?


For full report, see link below


S&P Global Investment Memo
.pdf
Download PDF • 522KB

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