S&P Global (previously known as McGraw Hill Financial) is performing really well since my first note (read more) in February. Share price is up to around $115 from around $85, decent double digit growth year to date. What’s happened?

First quarter results were good with 5% increase of revenues and 8% more EPS. That’s decent result, as we should remember that it is not a rocket science business and is heavily dependent on situation on global markets, which is volatile in last months. Long term growth of high single digit number is in my opinion a good result.

Business model is light, which means that company can return generated cash to shareholders. In Q1 company returned $322m, which is more than 1% of current market cap – nice (probably share repurchases were driving share price).

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Post-acquisition integration with SNL Financial is a key challenge for 2016. If managed successfully I hope to see further growth in operating margin. Nevertheless in my opinion such processes will take at least few quarters, so it shouldn’t be a short term driver.

Valuation is still demanding with EV/EBITDA = 13,6 and P/E = 22,5. OK, return of cash is on decent level, nevertheless I also look at valuation, which is really high.

 

Summing up, I guess there are no major risk for S&P Global in the foreseeable future, but valuation is too high. It seems that investors are buying this shares only for yield, which is not bad, but I would like also to see more appealing story for appreciation of shares (when shares are periodically depressed, which was at the beginning of year, but back then I also thought it is expensive). I raise my investable level to $75… cosmetic change, as it is far below current share price.

 

Disclaimer SPGI – no position