Industry Overview #2
Financial data and analytics industry
In the 2nd version of industry overview we are delving into the financial data and analytics industry. To conduct financial comparisons we use Koyfin (affiliate link with a 20% discount, note that if you are a StockOpine premium member you are eligible for a 3 month free trial).
As previously mentioned, we perform this analysis to narrow down potential investment candidates before selecting a company for deeper research. For our subscribers, the benefit lies in idea generation.
1. Key Competitors
Factset (Ticker – FDS): Factset is a financial data and software company offering workstations, portfolio analytics and enterprise solutions. With over 8,000 clients comprised of 190,000 investment professionals, Factset’s clientele include asset managers, bankers, hedge funds and many more.
Bloomberg L.P: Bloomberg is the global leader in the financial data and analytics sector, with its flagship product being the Bloomberg Terminal, with over 350,000 users worldwide. The platform is considered the go-to for buy-side analysts, trading desks and asset managers.
Refinitiv (Ticker – LSEG): Refinitiv’s product is arguably the most versatile, used by investors, banks, trading desks, corporations and many more. Refinitiv is considered to be the most reputable platform within the M&A space due to its powerful deal screening tool.
S&P Global (Ticker – SPGI): S&P’s Capital IQ is recognized as the industry’s leader regarding financial datasets, providing users with extensive financial analysis and non-GAAP financials that are particularly useful to investment bankers.
MSCI (Ticker – MSCI): A global powerhouse, providing indices for equities, fixed income and real estate, in addition to Barra, a financial analysis and portfolio management tool.
Morningstar (Ticker – MORN): Morningstar comprehensive offerings include tools and services for investment research and investment management, with offerings such as ‘Morningstar research portal’ and ‘Morningstar Advisor Workstation’.
Source: Koyfin, StockOpine analysis, Data as of 4 June 2024
2. Market size and forecasts
According to IbisWorld, the market size, measured by revenue for the Financial Data Service Providers industry in the US was $22.1 billion in 2023 and has grown at a Compound Annual Growth Rate (“CAGR”) of 4.5% between 2018-2023.
According to Koyfin, FactSet’s revenue is expected to grow to $2.2 billion (5.6% YoY change) for FY24, $2.34 billion (6.1% YoY change) for FY25, and $2.49 billion (6.5% YoY change) for FY26. For S&P Global, analysts expect revenues to grow at 7.6% for FY24, 7.7% for FY25, and 7.8% for FY26. For LSEG, growth rates are projected to be 4.0% for FY24, and 7.4% for both FY25 and FY26. These estimates indicate that the industry is expected to maintain mid-single-digit growth in the years ahead.
Market Share
The Bloomberg Terminal is undoubtedly the market leader within the industry. However, due to Bloomberg being privately owned, metrics are unavailable for comparison. WallstreetPrep estimates the market share of the Bloomberg Terminal to be roughly 33.4%, with a significant lead over Refinitiv, which is in second place with 19.6%. S&P’s Capital IQ holds roughly 6.2%, and FactSet has roughly 4.5%.
As mentioned in our Factset writeup, FactSet’s key strength lies in its affordability, priced at just $12,000 a year compared to $27,660 and $22,000 for Bloomberg and Refinitiv (full version), respectively. This positions FactSet in the market as the affordable ‘all-under-one-roof’ platform.
Industry Tailwinds
Companies within the financial data and analytics sector benefit greatly from general uptick into passive investing, with the use of exchange-traded funds. MSCI for example, is a large player in the ETF industry, along with other players that are involved in the financial data and analytics space, such as Blackrock, Nasdaq, S&P Global and many more.
This segment of MSCI is highly profitable, however, for companies such as Factset this could be negative in the long run, as the move from active to passive could mean less need for the products offered by Factset that are tailored to active investment managers.
3. Key Metrics
The comparison below is not necessarily apples-to-apples, as FactSet’s key competitors (excluding Bloomberg, which is privately owned) are owned by parent companies with much larger and differentiated product offerings. For example, Refinitiv is owned by the London Stock Exchange Group (LSEG), and Capital IQ is owned by S&P Global (SPGI).
Revenue Growth
MSCI revenue growth stands out, despite LSEG’s spike in revenues due to the acquisition of the Refinitiv platform in 2021. Morningstar follows closely while Factset ranks fourth, with 6% growth over the last fiscal quarter. From the chart, it is evident that the growth rates of these peers move in tandem.
Source: Koyfin (affiliate link with a 20% discount for StockOpine readers)
Profitability
Factset has shown stable and resilient profitability, ranging from 29%-31.2% over the past five years, compared to significant decreases in LSEG’s and S&P’s profitability between 2021-2022. LSEG’s acquisition of Refinitiv in 2021 negatively affected profitability, despite revenues tripling for FY22 compared to FY21. MSCI ranks far ahead of the competition with an EBIT margin of just under 54%, due to its highly profitable equity index element.
Source: Koyfin (affiliate link with a 20% discount for StockOpine readers)
Asset Turnover
Over the past year, Morningstar has surpassed FactSet’s asset turnover, indicating that it utilizes its assets more efficiently to generate revenue. However, FactSet has had the edge for the majority of the five-year period and has demonstrated a relatively stable trend, though it was affected by acquisitions like the CUSIP one in FY22. SPGI’s and LSEG’s asset turnover is significantly lower due to major acquisitions, such as SPGI’s merger with IHS Markit and LSEG’s acquisition of Refinitiv. It is important to note that LSEG's ratio is impacted by the clearing member trading assets, which inflate the asset base. Excluding this, the asset turnover is estimated to be around 0.2x, down from 0.3x in FY21.
Source: Koyfin (affiliate link with a 20% discount for StockOpine readers)
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Returns on Capital
Although declining, FactSet’s return on capital (ROC) remains ahead of its largest competitors, at 12.1%. The decline is mainly attributed to a decrease in asset turnover affected by acquisitions. The same can be said for S&P, which has shown a massive drop in 2022, bringing its ROC far below FactSet’s but still above LSEG’s and MORN's. Nonetheless, MORN has exceeded SPGI in the latest quarter. MSCI has shown a clear edge, with increasing returns on capital year-over-year, remaining above 20%.
Source: Koyfin (affiliate link with a 20% discount for StockOpine readers)
Debt to Equity
The debt-to-equity ratio is a key gearing ratio that indicates a company's debt appetite and bankruptcy risk, though it should not be used in isolation. Since our FactSet write-up in June 2023, FactSet has substantially decreased its debt, almost halving its debt-to-equity ratio. However, it still has the highest ratio at 94.6%, slightly above MORN, which also shows a declining trend.
SPGI and LSEG have low and healthy ratios, ranking 1st and 2nd, respectively. MSCI is not included in the below chart due to having negative equity. MSCI is highly leveraged, and if we examine its total debt to total capital, it has a ratio of 116.2% compared to 48.6% for FactSet, thus we rank it last.
Source: Koyfin (affiliate link with a 20% discount for StockOpine readers)
Valuation
Using the EV/EBITDA metric, a key ratio to indicate the relative valuation of a business, we note that MSCI, LSEG, and FactSet are trading below their five-year average, with FactSet trading at 18.9x, above LSEG’s 13.9x, but below the remaining peers. The 22.5x five-year average for FactSet could potentially indicate that the company is trading at a discount. Similarly, MSCI, at 25.4x, shows a considerable difference from its five-year average of 31.1x. We rank FactSet as first, followed by LSEG and MSCI.
It's essential to recognize that this ratio should never be evaluated against peers without considering factors such as moat, financial health, and earnings quality. However, the total score below serves this purpose.
Source: Koyfin (affiliate link with a 20% discount for StockOpine readers)
Estimated EPS growth
FactSet’s projected 5-year EPS growth is the lowest among its peers, with rivals such as SPGI and MSCI leading the pack with growth rates of 13.3% and 11.7%, respectively. For Morningstar, there are no available metrics, but a single analyst projects an EPS increase of 37.5% in FY24, 17.2% in FY25, and 19% in FY26. Although these projections are higher than SPGI's, we will rank Morningstar as second due to the limitation of having only a single analyst's estimate. Overall, it is impressive to note that all peers are projected to grow their EPS at almost double-digit rates.
Source: Koyfin (affiliate link with a 20% discount for StockOpine readers)
4. Total score & Conclusion
Note: In each category, we assign 3 points to the top-ranked company, 2 points to the second, 1 point to the third, and 0.5 points to the fourth. Equal weighting is applied across all categories to mitigate personal biases, except for Returns on Capital, which we consider one of the most critical ratios in assessing a company. Therefore, we've doubled the score for this metric.
Based on our analysis, FDS ranks second, tied with SPGI, while MSCI appears to be the best-performing company based on the metrics used. It is evident that MSCI’s index business helps maintain high profitability and attractive returns on capital.
If you are interested in learning more about FactSet, you can refer to the article published in June 2023 (FactSet - Unleashing the Power of Data).
Great value!
Great analysis, why FDS over MSCI in the portfolio? I recently started a position in MSCI, their fundamentals are stellar.