$SPGI · The Investor's Podcast · 2026-10-31

I'm a huge fan of SPGI. It's one of the world's great companies. Incredibly, incredible high returns on invested capital, very well protected. I think that's a pretty good bet that the world's going [music] to keep on issuing debt.

It's a name that's been around for more than 100 years, 100 plus years. Spectacular business, one of the world's great businesses.

I took a new position just a few hours here before we hit record. And I know for a lot of people, a lot of the listeners, it's it's not a big deal because they do that all the time.

It's been more than a year ago since I I last initiated a position. I have all kinds of biases like everyone else, I guess. But um I I sometimes tend to get bored and so [laughter] it's not good to get bored whenever you uh you invest.

And so I set up all kinds of guard rails for myself not to invest too often. And you one of the one of the things that I do here, and I'm just holding this up here to the camera, is that I always force myself to read at least 3 years of earnings uh releases before I can put a scent into uh a stock.

And you know, lo and behold, it actually works quite a bit because that means that I don't think that, oh, this is sounds exciting. Let me invest in that. Um anyways, the stock that I'm going to to pitch that I just took a position in here today is called S&P Global.

A lot of people probably are familiar with that stock. Um, and it's typically, and you've guessed it, they're the guys behind S&P 500 and a lot of other products we're going to talk about here today.

Um, I sort of like wanted to talk a bit about like how it sounds ridiculous whenever I say how I found this stock because it's not like it's a hidden gem to be talking about S&P Global. like I I feel like it's a company a lot of people know, but the way I came into this was really that like many other value investors, you know, it's for me it's always fun to go through the 13F filings.

And I'm not looking for any hot stock tips when whenever I do that. It's a bit more like a I have a lot of filtering mechanisms. One of them is, you know, I I I speak with you guys, you know, it's it's to me it's super super helpful.

Um, and it being the cheapkate I am, the way I look at 13A filings, which is the filings that a lot of I think technically it's asset managers registered in the US with at least $100 million as an amendment.

And so I feel like being the cheapkate is almost like having free stock analysts. That's sort of like how I'm how I'm looking at it. But unfortunately, since I don't pay them anything, they don't give me any stock reports.

You know, I all they tell me are their holdings and then I have to fill uh fill in the blanks. And so I like to just look up and see if there are any patterns, if there are any kind of of socks that is very popular.

And it's just a just sort of like a way to see, huh, perhaps there's something there. And I know this probably sounds a little silly because one of the things um that I found interesting was S&P Global that Chris Hone bought a bit more.

And you know, Chris started this position 2017. So why is it that this quarter it was appealing? I don't know. You know, it's one of those things that you look at someone for a very long time, you see what they're doing, then all of a sudden there's almost like something that that clicks.

And to me, it was it was interesting because there was a crossover with a new holding with a friend of the podcast Groom, who by the way also have a significant position in Toby's pick, but that's a different discussion.

And anyways, I uh I have a lot of respect for Chris and Chris. And so whenever there is a crossover, I was just like, okay, taking a look at it, there was a bit of insider buying trading at an attractive price.

Uh let's let's see what's going on. So that was sort of like the starting point. And I just want to say once again that doesn't mean that anyone should go into that trade by any means, but you know, it's it's a it's a way of sort of like have a lot of lot of filters out there and just sort of like to to have an idea of where you could start and then more often than not, you stop after 10 seconds and you're like there's this is just rubbish.

But then with with S&P Global, it just seemed to be more and more appealing as I kept on digging more into it.

So if we look at the company, there are four segments. Probably the one that they're most known for is their ratings business. That is around half of the operating income. And so basically what they do is um they rate for example corporate bonds.

So let's say that you're Alphabet and you're you're looking to raise capital and you're doing through the bond market, but then you need to get a rating. So to figure out like to basically give um public investors the information they need to make a informed decision and then lo and behold they're of course charge for that and so it's a it's a very interesting business model.

The business itself is interesting because they're basically three players and so the number that you might see getting thrown around is that S&P has 49% Moody's 33 and then Fitz 14.

That's probably not how I would look at it. And the reason for that is because it's not all ratings that are as attractive as as others. For example, your public markets are more attractive than private markets.

Um there are different pricing for investment grade and high yield and so on and so forth. So the way I'll probably look at this is that S&P has 45% and Mood is around 40% and then Fitz is really a distant third and then there's a some others but you can just for simplicity not really consider them too much

and really what I found to be very appealing about the ratings business is that whenever you have an autoopoly which is this essentially is there are substitutes so if you don't buy Boeing you're probably buying Airbus That's not how the ratings business work.

They complement each other. So if you have a Moody's rating, you also need an S&P rating. And so and you even have regulations that are helping you because for for a lot of companies, they it's actually mandated.

They need to have the ratings of uh the big rating agencies. So partly you are protected by that regulation. But what's even better is that it also makes sense for you because if you don't have partly you might have problems actually clearing your mandate to issue those bonds in the first place, but also there's adverse selection here.

So if you can't say that S&P or Moody's for example have rated you, you have to pay a higher price. And so it actually you save money as a company by paying Moody's or in this case S&P and then you don't as S&P you don't only make money whenever those bonds are issued they also have the so-called surveillance fees uh where they continue to update the ratings. So very interesting business model.

Then another business segment they have or the indices is only 10% of revenue but it's 20% of their operating profit. And so that is perhaps the best known is the S&P 500, but they have a ton of other indices.

If you're a Vanguard, you don't pay as much because you have so much scale. So it's sort of like a a tiered pricing model and it's probably less than one basis point that they're paying.

And of course, the information is not public, but you can sort of like try to tranulate from from whenever Vanguard moved money away from MCI and back in, for example, 2012. There's some data on that and then there's some newer.

So you can sort of like try to triangulate but the biggest providers probably pay less than a basis point probably around half a basis point but we're still talking about trillions and trillions of dollars. So it's still uh still adds up.

And then the the two smaller business segments or market intelligence and energy. Um you can you can think about market intelligence. I think probably the most prominent service they have is Capital IQ.

You can think about that as a competitor to Bloomberg's terminal. Actually, it's just been rumored here not too long ago that they might spin it off. And then they also have an energy division, but those are the two smaller divisions.

And again, there's a big difference whenever it comes to margin. So, for example, indices is 69%, margins, ratings are 65, whereas market intelligence is only 24%. So, just something to keep in mind.

Um, going to this segment here about risks and why this opportunity exists. I'm almost inclined to see that I don't see major risks at least to ratings indices. And of course, that's ridiculous to say that because capitalism is is brutal.

I think that if I have to highlight a few different things, I would say especially whenever you're looking at such a high quality business and the market typically is very good at recognizing if it's is a high quality business, especially if you have recurring revenue.

So there is of course a a risk in terms of are you are you overpaying? That's always a a risk and especially if you're looking at something that looks so stable as S&P. Is there a cliff out there just to use or a borrow a phrase from the company that that Har is looking at and it doesn't look so much to be the case.

Um, you can probably make the argument that with private credit there could be some competition coming. And it's not because S&P doesn't doesn't go into private credit. It's just because they don't make as much money whenever they're uh rating that.

It's probably something like 70% less per dollar of debt and then uh you don't have the surveillance tail end. It's very much because you have these private markets and like you have two parties that are very big and they negotiate with each other but by and large it's also a numbers game because whenever you're looking at the biggest of the biggest companies you have to go into public markets.

At least that's the way it's looking right now. So, it's not because private credit can't erode a small part of the business.

I would probably say the bigger risk is not so much what's the interest rate? Is it is it going up? Uh is there going to be a a short let's call it a pause like if you see a sharp increase in the interest rate.

I think the way I I probably more looking at this is if that stops growing then S&P is in a world of trouble. not just with with ratings, but also with indices. And I'd probably argue then on a world that's on a fear currency standard, you're not going to see that all of a sudden just stop.

I think it's a pretty secular trend. That's the short version. Now, I I don't want to go through the whole macro thesis, but if you truly believe that we're going to see less debt creation moving forward, don't buy S&P Global.

Um, now we have to talk a bit about AI. We always talk about AI and I do think whenever you look at at the stock price, it looks like it's going sideways for the past 5 yearsish.

And I do think that one of the reason I think there are many reasons but one of the reasons is that uh there probably be some concerns because S&P is seen as a data company and I can see why AI could be a threat to the market intelligence division.

Keep in mind the market intelligence is not a big part of that and if you're looking at something like capital IQ we're probably looking at something like 6 to 8% of their market cap if they got spun off.

So it's like it's I don't think it's it's the most severe thing but you know the market doesn't always look at a company and and and weigh every single part if it gets the reputation that this is a data company and AI is going to disrupt all data.

I do think that's one of the reasons why I also think that there is probably some valuation that they're trying to to work off. It used to trade at 40 PE back in 2021. Now it's closer to 23 and it's because earnings have gone up and I do think that it will continue to be so.

I'm a huge fan of SPGI. It's one of the world's great companies. incredibly moy, incredible high returns on invested capital, very well protected. Um, as you say, if she don't think that the world's going to keep on issuing debt, then stay away.

But I think that's a pretty good bet that the world's going to keep on issuing debt. Uh, it's a name that's been around for more than 100 years, 100 plus years. Yeah. Spectacular business, one of the world's great businesses.

The stock chart going sideways for 5 years isn't anything to do with the quality of the business. It's wholly to do with the price. And so, you know, I'm the value guy. So, that's really where my interest is.

Talk to me a little bit about where you see the valuation and what you see the returns like from here given the price. I sometimes feel that it's whenever you see a stock chart that's moving sideways or even seeing one that's just going south, you're like, "Oh my god, this is an amazing opportunity."

And then depending on your mood, sometimes you're like, "Oh, this has gone up for the past 5 years. It's probably going to continue." So if if we can go a bit uh away from that and look at the fundamentals to your point, you're absolutely right.

That is also how I read it where u whenever you go through the numbers like they're just printing cash and um it's it really looking like they're just overvalued and now the market sort of like sees in in a different light.

I think that's probably part of it. And I also think that there's probably a self-fulfilling prophecy for a lot of investors, especially because so many people are chasing momentum.

Like it doesn't look very appealing unless you look at the fundamentals.

Whenever I'm looking at the shareholder yield, I would probably be comfortable underwriting a 1% dividend than a 2% share buyback. And I think a lot of people would find that, especially the share buyback, to be quite conservative.

If you're looking at the numbers right now, we're closer to five, but some of that has been debt financed. They're also they did a they were spinning off the mobility segment, which gave them some cash that they could uh use buying back more.

SH Yeah. So, I think that's probably overstating that part of the shareholder yield a bit. Also, the management has been out talking about their optimal um leverage and they're a bit above the target and they have a pretty conservative target I should say but I think and this is from from memory but I think it's around they have their own adjusted IDA of course like any other company I think at the time of recording it's 2. 7 and I think they want to be between two and 2.5 but it's not like a a big deal adjusted is probably just going to go increase in any case, but also of course you can do that by paying up debt, but so I wouldn't underwrite too much in terms of share buyback.

I'd probably say 2% would be quite conservative.

I wouldn't be looking at the trail in 12 months here in terms of uh of revenue. They've been talking about 6 to 8%. Which I also find to be a bit conservative. But of course, if you add all those numbers up, you were going to say, "Oh, it's double digit and perhaps low double digit."

I wouldn't be surprised at all also because you've seen the multiple compression. I wouldn't be surprised at all if you saw a double over the next 5 years which would give you 15%.

There are a few things I would like to mention here that I actually very much like. They did it the spin-off of the mobility segment here. Uh this was back in July and so you can think about that as roughly $20 per share in terms of value.

So you have to adjust for that as you're looking for that. Now, I also like the rumors about spinning off Capital IQ, but it's a bit more because it's a bit counterintuitive for a lot of companies.

No one wants to rule a smaller kingdom. And so, whenever you have those spin-offs, I don't know, it it always makes me excited because finding companies that are truly shareholder friendly can sometimes be a bit challenging. Um, and so I like what that signals.

So to answer your question, Toby, I I'd probably say anywhere between 10 to 15%. It's kind of tricky. Like um whenever I try to model the intrinsic value, I'm probably around $450 to $500 if you put me on a spot.

And I started a I had a 1% starter position here today. I bought at 399. As you can tell, it was very important for me to to buy it below 400, which just happened to be two hours before we started recording here today. I could easily be wrong. And of course,

And it's also tricky because especially if you look at the ratings business, like it can look pretty choppy. Um, but it's, you know, for example, if you're looking at something like the hyperscalers, it's a small part of their overall business.

I think it's something like 3%. But it's 30% of the growth. And so you might be thinking, hey, that doesn't make any sense. What's going on? Partly because the hyperscalers used to spin up so much cash and they're not doing that anymore.

But it's also because you have this you have this massive number of companies that are just debt financed and that's just the way it works. And so that sort of like goes to my point before where yeah, you know, sometimes they might delay raising new debt if there are some chatter about XYZ and then you see whatever is going on at the Fed and like but at the end of the day they need that.

And so that was a very very long way of of saying 10 to 15%. And I feel pretty good about those returns because I feel like on the lower end of that there's a very strong downside protection and I still think that there's some upside there around 15%.

So it also comes down to this what is the certainty of those returns and I feel like to to use your words it's one of the world's greatest companies and um and that so that that's very much what I'm what I'm looking at.

yeah a very very interesting pick state and as Toby said this is one of those companies Modis and S&P Global with those of us who have been admirers of Buffett we have heard Buffett saying Modi or S&P is like a great business um always looked in envy because the valuations were always very high and now here we go we have an opportunity where the P ratios are looking quite attractive but then again when a great business is priced at a low PE a low valuation there are reasons and thing that I am looking at and where I wanted to get your perspective on is their market intelligence division that segment generates around close to $5 billion in business roughly as much as the rating business if I'm not mistaken And within that it's a heterogeneous set of services like the capital IQ desktop terminal like products is one there is also data and feeds business where they main companies that are their customers are the insurers private data companies and banks and stuff like that and then there is enterprise software business they have where They sell loan market platform and private portfolio monitoring tools and stuff like that.

Then there is credit risk solutions which is basically an extension of the rating into the workflows of the companies.

The last one I'm not too worried because I believe their rating business is robust. Like it's almost like what Buffett used to say like you know if you tell me that want to put anything other than Wrigley Stewingham in my mouth will I just to try something similarly like you know anybody who wants to get their debt or equity rated they would go to S&P or Mod's otherwise nobody would trust them or many wouldn't even accept. So that business to me is quite safe.

But I think what market is when I was looking at their PE, they're at 23 now. They used to be in the 3940 range. If you deduct 80% of their market intelligence revenue and translate it into earnings, then they will be at 39 almost in m of calculation like 39 38.

So the way I look at it is the market today is discounting their market intelligence business heavily and there are reasons for that. One is their desktop business as you mentioned is under kind of you know um attack from smaller startups which are growing substantially.

One of them is Alpha Sense which hit a 600 million in revenue recently. Uh there is another one which also is quite interesting to look at. Rogo. Rogo is the other one. These competitors are actually funded by S&P's customers like JP Morgan, Goldman Sachs, Wells Fargo, they are all backing these startups.

And with 600 million R, Robo is 50 million R. These guys are growing and they're trying to take away market share on the market intelligence side especially the the desktop terminal and the feed the analysis the credit risking portfolio monitoring um these areas also the other thing that is happening is as AI is becoming more prevalent things are moving from terminal to insights.

So earlier you used to employ a lot more analysts who are all watching the terminals using the terminal to get insights. Now with AI coming in the I mean at least the thesis is that you will no longer need that many analysts so the number of seats might reduce and two AI will do the job for you rather than having terminal and that that is where I the way I look at it is you're getting I'm probably not getting a steel and market is discounting what would happen in the next few years.

So I'm still buying this great company and a great franchise in credit rating at the usual PE that I would have bought it. So my expected returns would be still same had I bought it at 3839 considering the headwind.

So that's kind of what I'm worried about and I wanted to get your perspective on the market intelligence segment.

Yeah. Um I am pretty skeptical about marked intelligence. So I think you you bring up a a great point. Let me pull up the numbers here. So you're absolutely right. Market intelligence ratings are approximately same share of revenue but the margins are very different.

So market intelligence are only 17.9% of operating profits and onethird roughly of market intelligence is for example capital IQ. They don't break that out, I should say, in the public filings, but you can do a lot of triangulations with AI these days.

And I also think, you know, case in point, AI we we have to talk about, especially when it comes to market intelligence and how that's going to disrupt financial services. To me, it's a little bit tricky to wrap my head around.

Um, and let me explain why. I and perhaps I'm naive. I'm not too worried at least right now whenever it comes to cloud coming in and disrupting them. And of course they they're also connected with interfaces but it's not so much cloud even though a lot of their customers would already be in cloud.

They need the data and they're not shy of saying that 95% of the data is proprietary. It's 88% specifically in market intelligence. Now just because data are proprietary doesn't necessarily mean that they're it's great data.

Now you can think about this actually it was kind of it was quite interesting because we we started talking about 13F filings and so they were specifically asked into this in one of the earnings calls and so what they said was that the way that could also think about proprietary data was 13F filings are not but you can still find the 13 F filings on their terminal but they are sort of like putting their own layer on top of what does that mean then and then the question is well how important is it and what their insights is of their 13F and of course we can then ask questions and give you different data on that but I definitely think to your point that their competitors are partly it's right for disruption and I would also say I don't have any reason to believe that something like Caps IQ is better than fact sheets or Bloomberg said I have no reason to believe that's the case I definitely think that it's very commoditized now I do think and I I kind of feel like It's I'm copying out whenever I'm saying this.

I don't think it's a cliff by any mean. Um it's subscription more or less all the revenue is subscription. They need fast and reliable data. That's also why I'm saying Claude is not a a competitor right out of the gates.

Um they need that data to be reliable. It needs to be very good. They're already trained on that. And for everyone who's been running a company knows that if you trained your team on a certain type of uh platform, it's very difficult to stop.

And also very often the decision makers who might also be using themselves are not the one paying for it. They're talking about mid single digit jets in terms of growth. I don't know.

I I think you can probably underwrite something that's flat. I see a lot of pricing pressure on that segment. Um but I don't think it's material for the business as such whether it's plus 5% and or zero in market intelligence.

That's not where that's coming from. I do think it's very interesting to to follow how many of the now of course the mobility segment got a lot of attention also got quite a bit of attention that the capsule IQ might be spun off but whenever you follow them it's very interesting how often they would go in and buy different let's call them services or bundle of data or even companies if you like and then how often those things are being spun out.

It's really interesting to see how they do that. So, well, the first thing is that I would definitely pay attention to that as you're trying to model the different margins because if you're spending off something like your market intelligence, your margins are just bound to improve just by definition.

But I definitely think it's very valid that you bring that up, Hari. As you can tell, I don't have a good response to that other than whenever you crunch the numbers, it doesn't change the overall thesis, but I do agree that there's a reason why the market is has this negative sentiment of them being disrupted in market intelligence.

Yeah. So, before I end my my pitch, I just wanted to talk a bit about uh management and their compensation. I usually have like a a segment in all pitches where I just complain about management compensation.

Um, this is not going to be to be too different. It's not too bad though. I think if you look at it across the S&P 500, it's probably moderately better than average, but I also think it's a very, very low bar.

Um, and it's quite standard. What do I mean whenever I say standard? So you have 8% of of share of target would be base salary. Um so it's quite common and then they have the remaining is what they call at risk and I really really dislike that they call it at risk because typically and this is no different you have a portion of that that is in restricted share units which basically means that as long as you have a pulse and don't get fired you get free stock which is whenever you think about it not different than getting a base salary in the first place.

So you're kind of like is that truly at risk? In any case, um without going through like all the numbers, there is 18% is annual incentives which is your standard adjusted numbers where they're trying to grow revenue, trying to grow IITA and then of course they adjust because you can't have gap numbers and management compensation and then they have what they call long-term incentive which is 74% share target which is divided into some some performance measures of course by adjust busted nongap numbers and then uh restricted share units.

I also want to say that um the the insider buying that I I alluded to in the beginning of my pits are really not that significant whenever you start looking into it and they got a new CEO here.

I think it was November 1st, 2024. As it is very common for CEOs whenever they um uh they start a new position, they would typically do a bit of insider buying, but like it's it's like she bought a million worth and whenever you're making $12 million a year, like it looked a bit more like good faith.

Um what I actually find to be uh slightly more interesting was that it's quite common for LA cap or mega cap CEOs to to have this it's called a um 10b5-1 plan. It just rolls off your tongue and so it basically means that you automatically sell with ease vesting and the CEO has not done that and it's almost like two years ago now since she he became the CEO.

So, if you can see that as a bullish sign that she's at least not selling out of of the shares she's getting.

So, anyways, I feel like I've been rambling for too long here about how excited I am about S&P Global, but I just wanted to throw to you guys for concluding remarks or questions.

It's not an SPGI. It's not as a motier a business as that.