S&P Global Inc. SPGI Moat

Key data

The moat

Four businesses, four different reasons customers cannot leave, and they are not equally strong.

Indices is the best of them. An exchange-traded fund that names the S&P 500 in its prospectus cannot change to another index without a regulatory filing, disclosure to holders and a stretch of deliberate tracking error. The fee is a few basis points on assets, it costs nothing to deliver, and the switching cost belongs to somebody else.

Ratings is a regulatory licence: institutional mandates and capital rules reference recognised agencies and there are two that count. Market Intelligence sells the data terminal, where the moat is analyst muscle memory. Energy publishes the price assessments physical oil and gas contracts reference, which is a standard rather than a product.

What the strongest moat produces is visible in the sequence: Indices revenue has risen in every single quarter shown.

Widening or narrowing

The two best businesses compound and the cyclical one swings.

Indices and Market Intelligence have risen every quarter without a single down period. Ratings surveillance rose for four quarters then flattened near $590M. Transaction revenue swung from $585M to $746M with the issuance calendar.

The overrated case. The separation makes the remaining company look better without anything improving. Removing a division that grew 7% raises the growth rate of everything left, and Ratings now stands at roughly 36% of the smaller company against 31% of the larger one. That is more exposure to the credit cycle, not less, and it happened by subtraction. Meanwhile the nearest ratings rival has closed the quarterly revenue gap from 25% to 6% in three quarters, so the largest remaining business is the one losing relative ground.

On profit pool, Indices takes the thinnest and best slice: a few basis points on assets the fund sponsor charges far more to manage. Ratings takes a few basis points on an issue where the underwriting banks take considerably more. Both are small cuts from positions nobody else may occupy.

The moat is widening in indices and data, and narrowing in the largest business. On balance, stable.