S&P Global (SPGI)

Moody’s and S&P Global have this year traded as a blended average of two different businesses: a deeply moated ratings franchise that is largely insulated from AI disruption, and a data and analytics operation that is squarely in its crosshairs. In the current AI panic, each stock has sold off roughly in proportion to its exposure to the latter.

A similar logic holds for S&P’s equity index business. From [[SPGI, MCO] Market infrastructure: part 2](https://scuttleblurb.substack.com/p/spgi-mco-market-infrastructure-part):

_Likewise, the utility of equity indices like the Russell 2000, FTSE 100, S&P 500, and The Dow Jones, is derived from consensus rather than from absolute standards of reasonableness. The Dow Jones Index methodology, which weights its 30 constituents by share price, is routinely mocked as non-sensical, but its absurdity is more feature than bug as it suggests that a more sensible index couldn’t just come along and displace it the same way that a better technology might, in theory, replace entrenched network effects._

S&P’s Indices segment, meanwhile, should continue to be fueled by market appreciation and the same two secular tailwinds – active-to-passive migration and thematic benchmark creation – that have powered double-digit revenue growth over the past decade, with a potential third growth kicker emerging in the form of private market index products.

Excluding the soon-to-be spun off Mobility segment, Ratings and Indices1 together account for ~60% of segment-level EBITA. The remaining 40% is split across Market Intelligence and Energy. The latter two segments are a mishmash of data and analytics, and both were dramatically enlarged through the $44bn acquisition (~26x EBITDA) of IHS in 2022 (for more, see my March 2021 writeup: Thoughts on the S&P Global / IHS Markit merger):

Market Intelligence is a portfolio of products that management divides into three subsegments. The first and largest is Capital IQ, which provides financial and market data – including deep sector-specific data related to banking, insurance, real estate, and utilities, picked up through the $2bn acquisition of SNL – that investment professionals and sell-side analysts use to research companies, build valuation models, check estimates, and track markets, either by logging into a dedicated Bloomberg-like terminal or by piping it directly into their own systems.

The second is Enterprise Solutions, software that banks and asset managers use to manage loan portfolios (Wall Street Office), monitor private company holdings (iLEVEL), and manage the process of structuring and trading syndicated loans (ClearPar and Debtdomain).

Credit & Risk Solutions, the third subsegment of Market Intelligence, commercializes research and data related to S&P’s credit ratings, and offers tools that measure credit risk and analyze how sensitive a portfolio or company is to changes in credit conditions. It think about C&RS as S&P’s way of double dipping on its dominant ratings franchise. S&P realizes revenue once by issuing a bond rating, and then again by selling detailed research reports justifying the rating to banks, insurers, asset managers, and corporate treasury teams who buy those bonds.

S&P’s Energy segment combines Platts and IHS Resources, and serves energy producers, refiners, utilities, trading firms, brokers, and basically any commercial entity that traffics in commodities. It publishes thousands of daily benchmark prices – across oil, fuels, gas, chemicals, food and other commodities – that are ubiquitously referenced in contracts and used to settle trades. It also sells news and analytics to explain supply and demand trends, and offers data and software that drillers use to find promising oil fields and estimate how productive those fields might be.