Wednesday, 12 August 2015

Markit - breaking out?

As discussed at length three months ago (link here) I love Markit's range of economic and related insights but I struggled to rationalise buying the stock:

'So some good and some not so compelling especially with a forward P/E of x17s...There is much to like at Markit as a share to own but for me risk and reward is better balanced at a lower price even with the high recurring (in some form) proportion of revenues. The US$22s still seem more compelling to me' 

This has proved in the interim too conservative a view with the share continuing to trade in a tight US$25-28 range:

At first glance the numbers were not flawless although any dullness in the numbers...

...was influenced by the impact of negative FX translation.  This - as at the earlier link - particularly hit the processing division (along with primary issuance challenges) although the information and especially the solutions business.  

The impact of some of the above above shifts has been to improve the underlying recurring fixed revenue mix which is clearly better...

...but the more headline impressive element is probably related to the EPS accretion from the 'management actions'...

 ...helped by raising the net borrowing/leverage of the business.  A problem?  At an estimated end of year leverage of x1.5 times the answer is probably not especially with the continued buybacks equivalent to over 3% of the current market cap year-to-date.

Overall impressive numbers and the shares technically appear to be breaking out but I am still struggling with the valuation despite the above.  One to watch - and I have raised my flag level to the US$25s.  

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