Wednesday, 12 November 2014

A tale of three IPOs...where are we now? #1 Markit

Back in June I wrote a posting about three financial sector IPOs which came at pretty much the same time: Markit, TSB and Euronext.  So how have all three got on?  First...Markit.

At the time of the IPO I noted that: 'Around x20 a reasonable near-term ebit is a big price...but now it is all down to delivery and those recurring contracts and more.  I will remain on the sidelines until the first quarterly disclosure as a public company.  Markit though is a company to be keeping in touch with - and not just for its economic/related data output'.  

First things first, the share has declined since float.  No disaster but it is down:

So what about the company's Q3 numbers today?  Well the nine month numbers on a year-on-year basis are all growing at more than a double digit rate with the exception of diluted adjusted EPS at 9.6%.  Adjusted earnings only grew by 6.2% in the Q3 year-on-year period however.  

I noted before the ultra high recurring revenue proportion and this continues.  So what is dulling slightly the shorter-term earnings momentum?
 It certainly was not the largest division 'Information' which had strong pricing growth and customer retention/renewal.  This is the division I personally am most familiar with as seen at the Markiteconomics site and others.

Processing - less well known to the casual observer of the company - did well too.  As the company noted, nice margin progression due to increased volatility boosting derivative processing.
 Solutions grew more slowly at the ebitda level due to 'continued investment in growth initiatives' (including Asia and KYC solutions) which given the 25%+ revenue increase in Q3 year-on-year is understandable.  An 11% year-on-year increase in ebitda is hardly a problem.

So where is the fire then?  General operational expenses rose 11% so no huge issue there.  The reality is acquisition expenses and the wonderful 'other' helped pull back the proportional number for Q3.  Essentially whichever way you look at it, Markit is currently still a 10%+ growth company.

And cash generative too.  Interesting to see the US$70m+ reduction in net debt YTD too.  At less than one times net debt to ebitda the company could be described as underleveraged.

So what price the above profile?  US$4.8bn or around a x16 forward (FY15e) ebitda profile.  I would still say that is fairly full but no disaster for a company targeting 5-7% organic growth in a slow(er) growth world.  Below a US$22 share price (or c. 10%+ down from here) the company trades nearer a x16 EV/ebit profile.  That's the first price that I will take a look.  

Good company and I like their products...but I am going to wait for the share to come to me for the time being. 

Next up for this post IPO review (on Thursday) TSB and Euronext.  

No comments:

Post a Comment