Tuesday, 16 June 2015

I may not have access to Factset but I am impressed

There is a lot to be said for investing in areas you know about.  It was really on this basis that last month I took (another) look at Markit (link here) and hence on a quiet earnings day today in the US I took a look at Factset whose shares have risen sharply recently after a period of duller performance (as shown in the 5 year share price chart below):

So why the recent run?  Well the key income numbers showed either side of double digit rises...

Consolidated Statements of Income
(Condensed and Unaudited)
Three Months Ended
May 31,

(In thousands, except per share data)
Adjusted Operating income
Adjusted Net income
Adjusted Diluted earnings per share
Diluted weighted average shares

...driven by Annual Subscription Value ("ASV") for all different client types.  

'ASV was $1.021 billion at May 31, 2015, up 8.9% organically over the prior year. Excluding the effects of foreign currency and an acquisition, ASV increased $17.0 million over the last three months. ASV at any given point in time represents the forward-looking revenues for the next 12 months from all services currently being supplied to clients. Buy-side clients account for 82.8% of ASV and the remainder derives from sell-side firms that perform Mergers & Acquisitions ("M&A") advisory work, capital markets services and equity research. The buy-side and sell-side ASV growth rates were 8.5% and 10.9%, respectively'.

Additionally there was excellent retention levels (depending on definition 94-95%), ongoing share buybacks equivalent over the last year to a little under 5% of the market cap, a free cash flow yield of around 4% (a little over a quarter paid out as a dividend) and in constant currency terms the around one-third of total revenues that were produced outside the US grew by over 10% (with the core US business up 8.6%).  

Looking ahead to the fourth quarter too shows continuing potential with diluted EPS growth year-on-year for the period expected to be around 12%.  Certainly on the conference call management were pleased with the efforts and potential of the sales team with some newer products (including fixed income) performing well additionally too.  

Factset may be viewed as a cheaper alternative to a Bloomberg but in my observation the latter risks being over-engineered (certainly when I had one I barely scraped the surface of its capabilities).  In a world of more flexible buy and sell-side opportunities I can see Factset continuing to perform well.  

If I extrapolate the numbers then the share trades on around a x17s EV/ebit multiple which is pretty firm.  A x16s forward multiple would be available below a US$150 share price, a 5% free cash flow yield nearer a US$135 one whilst more clearer historical technical support is more around the US$120s.  

I think you can wait for a bad day etc. for one if not more of these levels but in short was I impressed: yes.

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