EUR 850.00 For Business Accounts Only

Morningstar | Despite Recent Progress, IHS Markit Still Has Ample Room for Margin Growth

Critical and proprietary data sets, analytics tools embedded in client systems, and subscriptions that account for over 80% of revenue underpin a sustainable competitive advantage for IHS Markit, one we believe will intensify as new products mature. In many sectors, IHS Markit’s products are sufficiently entrenched that they face little or no competition, a dynamic we expect to endure.IHS Markit generated 35% of fiscal 2018 revenue from the financial sector. While transaction processing is under pressure from increased electronic trading, we still expect the unit to deliver strong margins, funding expanded offerings in faster-growing areas that can add to IHS Markit’s competitive advantage (such as traded products and compliance tools). We anticipate the firm will unlock ways to use legacy IHS' proprietary data sets to underlie new indexes and factors. The Ipreo acquisition should augment IHS Markit's advantages by adding capital markets and alternative investment tools, rounding out the firm's offerings.The transportation unit (29% of fiscal 2018 revenue) includes products in the automotive, maritime, and defense industries. We believe the automotive lineup is especially attractive, particularly as IHS Markit's balanced exposure to the new- and used-vehicle markets should result in steady performance. Recently acquired automotiveMastermind (aMM) should further enhance IHS Markit’s value proposition to dealers through its digital marketing capabilities.While IHS derived half of its revenue from its resources segment (which mostly consists of energy sector products) in fiscal 2013, the unit’s share of fiscal 2018 sales was 22%. We believe this diversification manages volatility while retaining the benefits of highly advantaged assets and robust adjusted EBITDA margins (over 40% since fiscal 2014). IHS Markit sells proprietary, essential data; therefore, while client budgets have been pressured by low commodity prices that have also left small clients under duress, we expect a rebound as conditions improve (with upside if energy prices rise significantly).