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SPGI – Market expectations are for Uniform ROA to reach new peaks, but management may have concerns about their revenue, the IHS Markit merger, and service fees

March 26, 2021

  • S&P Global Inc. (SPGI:USA) currently trades at a historical high relative to UAFRS-based (Uniform) earnings, with a 29.5x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may have concerns about their non-transaction business revenue, IHS Markit merger, and their service fee collection

  • Specifically, management may lack confidence in their ability to achieve net zero gas emissions by 2040, focus on innovation and technology, and meet their non-transaction revenue growth outlook. In addition, they may be overstating the capacity of Kensho Extract to replicate information, the potential of their merger with IHS Markit, and the progress of their growth initiatives. Moreover, they may have concerns about the sustainability of demand for new products in China, the energy transition business from the IHS Markit merger, and the impact of shifts in global issuances. Additionally, they may be overstating the stability of their Ratings Evaluation services business and they may lack confidence in their ability to drive external revenue growth from Kensho.  Finally, they might have concerns about increases in adjusted expenses, due to incentive true ups and growth investments, and the sustainability of increased surveillance fees from bond issuances