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    S&P Global Inc (SPGI)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$459.72Last close (Feb 7, 2024)
    Post-Earnings Price$431.80Open (Feb 8, 2024)
    Price Change
    $-27.92(-6.07%)

    What went well

    • SPGI is confident in achieving its revenue targets for 2025 and 2026, aiming for 7% to 9% growth, driven by synergy growth that will continue to build, especially in years 3 to 5 after the merger.
    • Increased debt maturities in 2024 are more than 10% higher than in 2023, positioning SPGI's Ratings division strongly to achieve its revenue targets for 2024 as more issuers will need to refinance.
    • SPGI has delivered 1,200 basis points of margin expansion over the last 10 years, and continues to focus on margin expansion while investing in innovation and growth areas like energy transition and AI.

    What went wrong

    • Elevated cancellations in the Market Intelligence division, especially among small customers, due to macroeconomic pressures and hesitancy in discretionary spending.
    • The Market Intelligence division is behind revenue targets amid challenging conditions, including over 30% declines in M&A and 34% declines in private equity investment activity.
    • Despite market appreciation, AUM fees in S&P Dow Jones Indices were flat in Q4 as OTC volumes decreased, suggesting weakness in this segment.

    Q&A Summary

    1. Ratings Revenue Outlook
      Q: What drives your Ratings top-line outlook, transaction vs. non-transaction growth?
      A: We expect a stronger first half in 2024 compared to the second half, with billed issuance growth of 3% to 7%. Continued refinancing activity, especially in high yield and bank loans, will drive transaction revenue. We also anticipate stronger frequent issuer program issuance, which won't show in our billed issuance estimate. Non-transaction revenue is expected to perform robustly across surveillance, CRISIL, and other products.

    2. Market Intelligence Growth
      Q: Is the selling environment improving for Market Intelligence, and how confident are you in meeting growth targets?
      A: Despite challenging markets with over 30% declines in M&A activity and 34% decline in private equity investment, we're optimistic about continued growth. Our confidence is high in reaching the 7% to 9% growth targets for 2025 and 2026. Revenue synergies from the merger will continue to build, and as macro conditions improve, we expect to accelerate toward those growth levels.

    3. Generative AI Initiatives
      Q: How are you leveraging generative AI for monetization and client value?
      A: Generative AI is being embedded across our products to unlock the potential of our extensive data sets. Tools like ChatIQ are receiving positive feedback and will enhance client workflows. We believe AI will improve productivity and deepen customer engagement, serving as a tailwind for our business rather than relying on a single "killer app".

    4. Revenue Synergies from Merger
      Q: Can you provide color on the higher-than-expected revenue synergies?
      A: We're excited about achieving $152 million in annualized revenue synergies, higher than expected. Early successes include cross-selling products across divisions and launching new products like Platts Connect. In 2023, we launched 7 new products within Market Intelligence and have 14 more set for 2024.

    5. Cost Impacts and Margins
      Q: How are higher costs impacting margin guidance for 2024?
      A: Higher costs in Q4 were due to benefit realignment and incentive compensation exceeding expectations. We're seeing this as a one-time step-up cost, with 2024 payouts planned at 100%. We remain focused on balancing efficiency with investments to drive top-line growth and expect margin expansion across our divisions.

    6. Index Business Outlook
      Q: What are the trends in the Index business, particularly regarding OTC products and AUM growth?
      A: In Q4, ETFs saw fees increase by 8%, driven by market appreciation and strong inflows, while OTC volumes were down. For 2024, we assume AUM growth at a mid-single-digit level, ETD volumes increasing low single digits, and double-digit subscription growth.

    7. Portfolio Optimization
      Q: Are you considering any large divestitures in your portfolio review?
      A: We continually assess our portfolio for top-line growth and margin expansion. While we made small divestitures and shut down some products last year, we focus on expanding in areas like private market sustainability and risk analytics. We will always apply discipline in portfolio management but have no planned large divestitures at this time.

    8. Ratings Pull-Forward Activity
      Q: Did you see any pull-forward activity affecting your Ratings outlook for 2024?
      A: We observed some pull-forward from 2024 and even 2025 into 2023, not just in Q4. Repricing and refinancing momentum picked up in the latter half of last year and continues into this year, informing our outlook for a stronger first half in 2024.

    9. Potential Conservatism in Guidance
      Q: Where might your guidance be conservative, and which segments could outperform?
      A: Our guidance considers potential economic slowdowns and geopolitical factors. If interest rates decline faster or the macro environment improves more quickly, there could be upside. Segments like automotive and energy transition are areas we're closely monitoring for potential outperformance.

    10. Market Intelligence Customer Cancellations
      Q: What details can you provide on elevated cancellations in Market Intelligence?
      A: Elevated cancellations were mainly among our smallest customers. Larger customers showed stronger renewal rates, and we're hopeful that as markets stabilize, this trend will improve in 2024.

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