EUR 850.00 For Business Accounts Only

Morningstar | With Fiscal 2019 Off to a Sound Start, Our Outlook for IHS Markit Is Intact; Shares Trade Fairly

After it posted first-quarter results, we do not plan a large change for our $53 per share valuation for wide-moat IHS Markit. We still expect mid-single-digit organic revenue growth and adjusted EBITDA margin expansion into the mid-40s (from 39% in fiscal 2018) through fiscal 2023.

IHS Markit saw sales of $1.0 billion against a 39% adjusted EBITDA margin. Management reiterated its fiscal 2019 guidance, calling for $4.425 billion to $4.50 billion in revenue and $2.52-$2.57 in adjusted diluted EPS, versus our $4.5 billion and $2.59 respective pre-announcement marks, including expected share buybacks.

Results were solid among the largest verticals, with the resources, transportation, and financial services units posting 6%, 8%, and 6% organic revenue expansion, respectively. The strength shows IHS Markit’s balance; its largest vertical, financial services, constituted only 35% of sales in fiscal 2018, while resources accounted for half of legacy IHS’s top line in fiscal 2013. While we view the resources segment’s prospects favorably as client capital budgets recover and it benefits from a leaner cost structure (its adjusted EBITDA margin rose around 180 basis points from fiscal 2015 to 2018 despite low-single-digit average top-line contraction), the transportation and financial services units enjoy intangible asset and switching cost advantages that contribute to our wide-most rating.

Financial services saw a solid quarter, driven by data, loan services, and software. We view its solutions and Ipreo units particularly favorably (high-single-digit combined growth forecast through fiscal 2023), with the latter boosting IHS Markit’s value to clients by adding capabilities in the fast-growing alternative investments analytics space. With its offerings embedded in client processes and regulatory complexity incentivizing partnerships with trusted vendors, we expect IHS Markit to leverage its segment strength, driving mid-40s long-term adjusted EBITDA margins.