Very interesting article on the topic of quality shares by $SPGI (-0,15 %) Exploring the Principles of Consistency and Efficiency in Free Cash Flow Metrics

https://www.spglobal.com/spdji/en/documents/education/education-the-sp-quality-fcf-aristocrats-indices.pdf

I myself invest in the two indices launched by SPDR via DCA.

$QDEV (+0,47 %) and $QUS5 (+0,58 %)

Stock exchange operators profit directly from the trading volume on the financial markets. They earn from every transaction, regardless of whether the markets rise or fall, which gives them a certain crisis resistance. They also offer stable income through trading fees, data licenses and index products.

During my research for the $SPGI (-0,15 %) stock presentation, I came across London Stock Exchange when I wanted to know who was actually behind the FTSE indices.

I immediately imagined a fantastic narrative about LSEG, but after a superficial analysis and comparison with Deutsche Börse, I was disillusioned.

In summary, there is a lot to be said for $DB1 (+0,76 %)a solid business model, high profitability, attractive margins, strong market position in the EU and continuous growth, a real quality company.

What do you think?

Brief presentation of the company

- ISIN / Ticker: US78409V1044 $SPGI (-0,15 %)

- Sector / Industry: Finance - Financial Services / Data & Analytics

- Geographical positioning: Globally active

Business model

S&P Global is a leading global provider of financial information, ratings and analytical data. The company is best known for its credit ratings (Standard & Poor's Ratings), indices, including the well-known S&P 500, as well as extensive market data and software solutions.

Main business areas:

- S&P Global Ratings - credit ratings for companies, governments and financial products

- S&P Dow Jones Indices - operation and licensing of global indices ( (many S&P indices are not directly recognizable in name as they are licensed by third party providers such as iShares and marketed under their own names)

- S&P Global Market Intelligence - Financial data & tools for analysts, companies and investors

- S&P Global Commodity Insights - data and analysis for commodity markets

Following the acquisition of IHS Markit in 2022, the company was positioned even more strongly in the area of data and technology.

Fundamental metrics:

Market capitalization: approx. USD 142 billion

P/E ratio / forward P/E ratio: 37 / 31

Earnings per share (GAAP EPS):

• 2024: 12.35 USD
• 2025e USD 14.20-14.45

Turnover:

• 2024 USD 14.208 bn /
• 2025e USD 15 bn +5.7%

Sales growth: 14%

Profit growth: 13

Net margin 2024:

• 27.1% / USD 3,852 million (+47% on the previous year)

Operating cash flow:

• USD 5,689 million / cash flow margin 39%

Return on equity (ROE): 11.27%

Equity ratio: 62.3

Debt-equity ratio: 19%

Interest coverage ratio: 18.8

Dividend yield: approx. 0.85

Valuation & comparison

S&P Global typically trades at a valuation premium to traditional financials due to its monopoly-like business model, high scalability and stable and growing cash flows.

The average P/E ratio over the last

- 10 years at 41.3

- 15 years at 33.3

In my opinion, these figures reflect the confidence of the market, the pricing power and the growth profile of the company.

Comparable companies in the sector are Moody's, MSCI and FactSet. S&P Global is considered to be the broadest and most diversified provider with a leading market position across all segments.

Opportunities & investment thesis

Pro arguments:

- Monopoly-like market position: S&P has a quasi-oligopolistic position in the credit ratings sector

- Recurring revenues: License fees and subscription models ensure predictable revenues

- High scalability: Data & software business benefits strongly from margin leverage

- Global expansion: demand for financial data is growing worldwide

- Strong expansion of data analysis and AI expertise

Risks:

- Dependence on market activity, weak phases in the issuing market could burden the rating business

- High valuation and growth expectations

Chart technology

The S&P Global share is in a long-term uptrend and is currently trading approx. -21% below its all-time high.

In mid-2024, the share price emerged from an upward consolidation phase lasting several months. If the USD 470-480 range is sustainably overcome, new highs are possible. Support areas are located at around USD 444 and USD 404.

Personal assessment 🤓

S&P Global is a real quality stock with a castle moat and a data-based business model that is highly scalable. The valuation is ambitious 🧐, but justified by market position, growth and margins.

In my opinion, S&P is a potentially outstanding candidate for long-term investors who are betting on the digitalization of the financial sector.

Sources:

https://www.spglobal.com

MarketScreener

Finance.net

Seeking Alpha

Fullratio

Times

JP Morgan $JPM (+0,35 %)

Visa $V (-0,06 %)

Chubb $CB (-0,81 %)

Blackrock $BLK (-0,74 %)

Intuit $INTU (+0,22 %) (very expensive)

German Stock Exchange $DB1 (+0,76 %)

S&P Global $SPGI (-0,15 %)

HDFC Bank
$HDFCBANK (speculative - India bet)

I would be interested to know which are your favorites for a long-term investment?

the next 3 purchases are from the financial sector $SPGI (-0,15 %)

MSCI - Corporate quality meets growth

$MSCI (+1,01 %)

MSCI is a leading provider of equity indices (e.g. known as the creator of MSCI World), risk management tools and ESG data solutions used by fund providers, asset managers and institutional investors worldwide.

MSCI generates the majority of its revenue (58%) from index licenses - i.e. for clients using MSCI indices in their investment products such as ETFs, funds or derivatives. This income is mainly based on fixed, recurring license fees and is supplemented by volume-based fees: the more capital is managed via an MSCI product, the higher the fee. In total, around 97 % of revenues are recurring - This ensures a high degree of predictability and makes the business model particularly crisis-resistant.

Together with S&P Global $SPGI (-0,15 %) and FTSE Russell, MSCI dominates the market for equity indices - these three companies alone account for >70% of the market.

Put simply, MSCI will grow as long as the following points are true:

• Clients choose MSCI as their index provider (there are only the three major providers mentioned above to choose from)
• Customers' investment products based on an MSCI index receive an inflow of funds (e.g. due to the increasing trend towards passive investing via ETFs)
• Long-term rising stock markets

If you are interested, I can go into more detail about MSCI another time. Today I would like to illustrate the powerful mechanics of quality and growth using MSCI as an example.

Criterion 1: Company quality

Here are some points that make MSCI a quality company:

• Dominant market position in the index business: MSCI is one of the leading providers of equity indices worldwide and has established itself as the market standard with benchmarks such as the MSCI World or MSCI Emerging Markets. Many institutional investors and ETF providers use MSCI indices as a reference, which leads to strong customer loyalty and high switching costs.
• Pricing power: Thanks to the strong market position and deep integration of its products with clients, MSCI can regularly enforce price adjustments without risking high client churn. Customers are often heavily dependent on the indices and analysis systems.
• Recurring, predictable revenues: Much of the revenue is recurring and based on long-term license agreements or volume-based fees, such as depending on clients' assets under management (AUM). This means that revenues are very stable and easy to forecast - even in fluctuating market phases.
• High scalability: MSCI distributes largely digital and data-driven products, which means that new clients can be served with little additional effort. This leads to attractive economies of scale and rising margins with growing sales.
• Diversification of revenue sources: In addition to the index business, MSCI generates further revenue from areas such as ESG data, climate risk models, portfolio analysis and real estate valuation. This diversification makes the company less dependent on individual segments or short-term market trends.
• High management quality: The management pursues a long-term strategy with a focus on sustainable growth, efficiency and innovation. A high degree of discipline and clarity is evident in communication and implementation.
• Capital allocation: MSCI makes targeted investments in high-margin growth themes, makes complementary acquisitions and uses excess capital for sensible share buybacks. Capital allocation is focused, shareholder-friendly and growth-oriented.

Criterion 2: Growth

MSCI is growing steadily, albeit not explosively: since 2015, the company's turnover by an average of 11.5 % per year (see chart below).

Over the same period, the company has increased its net profits faster (19.5% per year) than sales - a classic sign of a high-quality, scalable company (see chart below).

Main reasons: Increased sales hardly lead to additional costs, better operational efficiency with increasing size, disciplined cost control and regular price increases.

MSCI was able to convert these profits very efficiently into free cash flow into free cash flow. Since 2015, net profit has increased by an average of 19.5% per year - free cash flow by as much as 20.2% per year (see chart below).

Free cash flow is the money that actually remains in the company after all expenses - i.e. what can be used, for example, to repay bank debts, buy back shares, pay dividends or take over other companies.

MSCI therefore not only manages to operate profitably, but also to convert a very high proportion of these profits into real money - a sign of:

• high capital efficiency
• a lightweight, digital business model with low capital expenditure
• and strong financial control of the company

Even more important than free cash flow, however, is free cash flow per share increased even more than free cash flow: by an average of 24.7% per year (see chart below).

The free cash flow per share shows how much real money flows to each individual shareholder per year. The fact that this figure is growing even faster than the total cash flow is due to the fact that MSCI has simultaneously reduced the number of outstanding shares due to its high profitability - through regular share buybacks (see chart below).

This is particularly attractive for investors: Even if you don't buy any additional shares, your stake in the company grows automatically because there are fewer shares of the company. This shows that MSCI not only works efficiently in operational terms, but also deploys its capital in a disciplined and shareholder-friendly manner.

The share price of a company follows the free cash flow per share over the long term. MSCI is no different: as mentioned, free cash flow per share has risen by an average of 24.7% per year since 2015, while the share price of MSCI increased by 25.0% per year over the same period (see chart below).

As the development of the free cash flow per share and the share price are almost congruent, this implies that the valuation of the company has increased only insignificantly. This can be clearly seen from the fact that the ratio between the share price and free cash flow (P/FCF) has risen only minimally between the end of 2015 and today (see chart below).

In other words: the rise in MSCI's share price is predominantly due to more sales, higher profits, higher cash flow and share buybacks, and not due to a rising valuation - which is positive. In fact, if investors give the company a higher valuation for the free cash flow per share that the company generates, then this actually offers potential for a higher share price.

Over the long term, MSCI's strong operating performance has clearly outperformed an index such as the S&P 500 ("SPY") clearly outperformed (see chart below).

In the last 5 years, however, the S&P 500 ("SPY") the nose ahead (see chart below).

On the one hand, this speaks for the the outstanding quality of the S&P 500 as well as for a potential for MSCI to catch up - provided that the company continues its successful operating performance in terms of sales, earnings and cash flow.

Do you have MSCI in your portfolio? Are you thinking about buying the stock?

In uncertain times, it is important to keep a watchlist so that you can pick up stable shares at bargain prices. I hope we go down a few more levels, another -20% would be nice, even if the short to medium-term price losses hurt.

I currently have almost 30 stocks on my watchlist, some of which are attractive in terms of price, while others are still far too high for me. I have not listed stocks that are already in my portfolio and that I would like to buy (in order of dividend amount):

Hercules Capital $HTGC (+0,7 %) or Main Street Capital $MAIN (-0,6 %)
Chevron $CVX (-0,13 %)

Vinci SA $DG (-0,1 %)
United Parcel Service $UPS (-0,57 %)
3i Infrastructure $3IN (+0,54 %)
Iron Mountain $IRM (+2,92 %)
Micro Star International $MSS
Nextera Energy $NEE (+0,17 %)
Partners Group $PGHN (+0,63 %)
Itochu Shoji $8001 (-0,12 %)
Canadian National Railway $CNR (-0,36 %)
Svenska Cellulosa $SCA B (-2,82 %)
VAT $VAT
Investor AB $IVSB
Assa Abloy $ASSA B (+1,9 %)
Linde $LIN (+1,07 %)
John Deere $DE (-0,43 %)
Landstar Systems $LSTR (-3,25 %)
Dover Corporation $DOV (-0,13 %)
Alimentation Couche-Tard $ATD (+0,39 %)
ASML $ASML (-0,08 %)
Infineon Technologies $IFX (+1,84 %)
Sherwin-Williams $SHW (-1,19 %)
Tencent $700 (+1,13 %)
Microsoft $MSFT (+1,32 %)
S&P Global Inc. $SPGI (-0,15 %) or Moody's Corp. $MCO (+0,1 %)
Visa $V (-0,06 %) or Mastercard $MA (-0,21 %)
Ferrari $RACE (+1,1 %)

Which stocks do you have on your watchlist?

#aktien
#watchlist
#crash
#stock
#market

Nvidia $NVDA (+4,72 %)

Novo Nordisk $NOVO B (-0,7 %)

Microsoft $MSFT (+1,32 %)

ASML $ASML (-0,08 %)

Intuit $INTU (+0,22 %)

Airbnb $ABNB (+0,29 %)

Amazon $AMZN (+0,25 %)

MSCI $MSCI (+1,01 %)

S&P Global $SPGI (-0,15 %)

LVMH $MC (+0,33 %)

Nike $NKE (-0,18 %)

Hims & Hers $HIMS (-0,04 %)

AMD $AMD (+2,72 %)

The Trade Desk $TTD (-0,15 %)

Do you see it similarly? Are you currently holding one of these shares?