EUR 850.00 For Business Accounts Only

Morningstar | IHS Markit’s On-Track Third Quarter, Decision to Retain MarkitSERV Do Not Change Our Outlook

With third-quarter results in line with our near- and long-term targets for wide-moat IHS Markit, we do not plan a large change for our $51 per share valuation. We also do not expect its decision to keep MarkitSERV (a derivatives processing unit that accounted for less than 5% of fiscal 2017 sales) will materially alter our long-term outlook (mid-single-digit organic revenue growth and adjusted EBITDA margin expansion into the mid-40s, from 39% in fiscal 2017, through fiscal 2022).

Year to date, it saw 11% revenue growth against a 39% adjusted EBITDA margin. Management updated its full-year targets to incorporate recently acquired Ipreo, calling for $4.00 billion-$4.02 billion in revenue, $1.55 billion-$1.56 billion in adjusted EBITDA, and $2.25-$2.27 in adjusted EPS. Our pre-announcement marks broadly agree, expecting $4.00 billion, $1.56 billion, and $2.29, respectively.

Management stated low bids led to its decision to keep MarkitSERV. While we are somewhat concerned about the aborted sale process’ impact on staff and client relationships, it is highly profitable and saw 7% quarterly growth. The unit should help fund ongoing financial segment (40% of pro forma sales) growth, which should come as regulatory requirements pair with data management and analytics needs to lift sales. We expect 7% segment organic revenue growth and adjusted EBITDA margin expansion toward the high-40s from fiscal 2017’s 45% mark through fiscal 2022.

While management indicated a delayed product launch has recently acquired aMM trailing its initial targets, we are unconcerned. We contend aMM’s marketing and predictive analytics tools (along with its delayed conquest sales initiative) reinforce IHS Markit’s offerings to auto dealers (including Polk and CARFAX products). We still anticipate the transportation segment (27% of pro forma sales) to see high-single-digit revenue growth against adjusted EBITDA margin expansion into the mid-40s (from 41% in fiscal 2017) through fiscal 2022.