美股商业与信息服务业信用评级机构研究

1、North America Equity Research10 July 2019Information Services: Credit Rating AgenciesCredit Rating Agency Initiation; Financial Info Services Companies Driven by Innovation and Pricing PowerMCO, MCO USOverweightPrice: $197.77 (09-Jul)Price Target: $220.00 (Dec-20)SPGI, SPGI USOverweightPrice: $231.6

2、6 (09-Jul)Price Target: $260.00 (Dec-20)We are initiating coverage on the global credit rating agencies with an Overweight rating for Moodys Corporation (MCO) and S&P Global (SPGI). The core credit ratings business of MCO and SPGI has been established for 100+ years, but both MCO/SPGI have devel

3、oped complementary businesses to leverage their proprietary expertise/data and capture adjacent opportunities. Despite short-term volatility from debt issuance trends, over time, MCO/SPGI have displayed impressive organic, constant currency (o/cc) revenue growth driven by pricing power, innovation a

4、nd a growing end market.Business & Information Services Michael Y Cho AC(1-212) 622-3619michael.cho Bloomberg JPMA CHO <GO> Andrew C. Steinerman (1-212) 622-2527andrew.steinermanJudah Sokel, CFA, CPA(1-212) 622-6669judah.sokelJ.P. Morgan Securities LLC·Dominant competitive position. T

5、he role of the credit rating for fixed income securities is virtually un-detachable for issuers and investors, similar to a utility. The industry has enjoyed great tailwinds over decades, and the leading credit rating agencies are operating in their strongest competitive position today. MCO and SPGI

6、 represent over 80% of the US credit rating agency industry (higher than a decade ago). We believe the barriers to entry are as high as ever with increased compliance oversight and the difficulty in building a scaled operation with credibility and brand recognition. We do not foresee major shifts in

7、 the credit rating agency competitive landscape, and we believe MCO/SPGI will maintain dual market leadership (with the norm being two ratings per debt issuance).Unmatched pricing power. A top consideration for quality Info Services businesses is the ability to raise price ahead of costs. We think o

8、f the credit rating as a necessary workflow input for both credit investors and issuers in the capital markets process. We observe that MCO and SPGI have strong pricing power given their value proposition (for issuers and investors) and their modest take.Capturing secular tailwinds with critical dat

9、a assets. Info Services companies own need-to-have data that enables decision making across end markets. MCO and SPGI have unique, scaled data assets that are positioned to capture the secular growth in data usage (and value) across the financial services industry. Both MCO and SPGI have invested (o

10、rganic/inorganic) to unlock use cases for their critical data assets as innovation is a top focus (e.g., artificial intelligence, machine learning and data analytics). In the war between the machines (software/analytics) and data, we think the owners of data have the advantage but it helps if a prov

11、ider has both.Key debates. Near-term debt issuance trends (recently sluggish), credit cycles, organic revenue growth and margin expansion are always key debates at MCO and SPGI. We realize lower interest rates do not always equal more debt issuance, but clearly bonds are preferred by investors vs. b

12、ank loans in todays benign interest rate environment. Apart from the cyclical nuances, we appreciate the large medium-term···opportufor the global credit rating agencies as well as MCO/SPGIsability to participate in a secular growth story with critical data assets that range from cred

13、it, energy and private company info to ESG and commercial real estate.Establishing YE20 price targets of $220 for MCO and $260 for SPGI. These targets are based on 2021E P/E valuations, in line with current trading levels.·See page 96 for analyst certification and important disclosures.J.P. Mor

14、gan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware thatthe firm may have aof interest that could affect the objectivity of this report. Investors should consider this report as only a singlefactor in making their investment decisi

15、on.获取报告1、2、3、每周群内7+报告；当日华尔街日报、4、行研报告均为公开利归原作者所有，起点财经仅分发做内部学习。扫一扫关注 回复：加入“起点财经”群。Michael Y Cho(1-212) 622-3619michael.choNorth America Equity Research10 July 2019Table of ContentsInformation Services Industry Thesis3Credit Rating Agency Industry Overview4History4Business mof credit ratings4Approach t

16、o credit rating pricing: small cost but high value5Limited market share shift outside of the big three6Credit ratings agency controversy from the global financial crisis8S&P and Moodys credit rating segment comparison9The China bond rating market opportu.11Global debt issuance trends14Moodys19Mo

17、odys Investment Thesis, Valuation and Risks19Moody's Company Overview22Moodys Segment Overview: Moodys Investors Service (MIS)27Moodys Segment Overview: Moodys Analytics (MA)31Financial Overview and Valuation: Moodys37S&P Global48S&P Global Investment Thesis, Valuation and Risks48S&P

18、 Global Company Overview51S&P Global Segment Overview: S&P Ratings56S&P Global Segment Overview: Market Intelligence60S&P Global Segment Overview: Platts68S&P Global Segment Overview: S&P Dow Jones Indices74Financial Overview and Valuation: S&P Global832Michael Y Cho(1-21

19、2) 622-3619michael.choNorth America Equity Research10 July 2019Information Services Industry ThesisDiversified end markets and compounding business ms driven byproprietary data and analytics. Info Services companies serve diverse end markets such as insurance, energy, financial markets, consumer len

20、ding and others, but whatthese providers all have in common is a business mbased on ownership ofproprietary data. They sell that data, typically on a fixed subscription or recurring transactional basis, and then they provide analytics and software layered on top of theunderlying information. While t

21、he Info Services business m highlighted byrecurring revenue streams and the provision of “need to have” information offers some insulation from end-market volatility, Info Services firms are notimpervious to underlying end-market trends, both positive and negative. Credit ratingagencies are more tra

22、nsactional than the fixed-subscription Info Services companies. Debt issuance volumes cause short-term volatility but grow over time (see Figure 17).Info Services companies proprietary data assets provide high barriers to entry that allow them to enjoy dominant positioning in their end markets, and

23、they generate strong free cash flow which they are able to deploy in many attractive ways. One key characteristic we look for in Info Services companies is pricing power. The other key characteristic we look for is innovation in terms of cross-selling data analytics products. With their critical rol

24、e in the capital markets ecosystem, we observe that FinTech Info Services companies Moodys and S&P have earned strong pricing power given their value proposition (for issuers and investors) and their modest take.In our view, organic revenue growth is the top variable for the Info Services sector

25、. Our basis for emphasizing this metric is substantiated in JPMs Global Info Services Data Book in which we demonstrate the high relative correlation between the groups P/E and organic revenue growth (see Figure 48). Over the past 12 years, the sector organic revenue growth CAGR has been +5% with a

26、low point of 0% around the great recession. S&P and Moodys have performed impressively vs. those averages over time but have also shown high volatility in some periods given the impact of debt issuance volumes. That said, we believe having exposure to the debt market as an end market is favorabl

27、e despite the potential short-term volatility. The Info Services sectors mid-single-digit organic revenue growth has produced double-digit EPS growth, compounding over time.We observe a pronounced evolution in the Info Services group as the stock group has broadened in scope since the last recession

28、. Top Info Services companies have been layering analytics over essential data offerings and expanding addressable markets through new data analytic products and verticals. In our view, diversification should insulate the groups top-line results even better in future recessions. Modern technology pl

29、atforms enable a golden age of data subscriptions and analytics.Further, with the advancement of artificial intelligence (AI) tools, Info Services companies are investing organically (e.g., INFO/blockchain loan syndication, TRI/Westlaw Edge, RELX/Lexis Answers) and inorganically (e.g., MCO/QuantCube

30、, SPGl/Kensho) to augment current product offerings and enhance new product development.Please contact us for a copy of our sector primer: J.P. MORGAN'S GLOBAL INFO SERVICES DATA BOOK.3Michael Y Cho(1-212) 622-3619michael.choNorth America Equity Research10 July 2019Credit Rating Agency Industry

31、OverviewHistoryThe credit rating industry can trace its roots to the 1800s but began to take more notable form with the establishment of Moodys, Standard & Poors (S&P) and Fitch (the big three) during the early 1900s. John Moody is widely cited as creating the first credit ratings for corpor

32、ate bonds, and John Fitch first introduced the alphabetic credit ratings scale in 1924. In short order, all three of todays big three credit rating agencies developed their own presence in the market with unique publications. While there have been a number of ownership changes, what is fascinating i

33、s that despite all the development that has occurred in the financial markets over the past 100 years, the three primary credit rating agencies have largely continued about their business. Today, both S&P and Moodys are independent public companies, while Fitch is owned by Hearst (a private comp

34、any). Figure 1, below, notes the founding years of the credit rating agencies.Figure 1: The early years of credit rating agencies19091916192219241972197419771980Moodys Investor Service Poor's Publishing Standard StatisticsFitch Investor Service Canadian Bond Rating Thomson Bankwatch Dominion Bon

35、d Rating Duff & Phelps Credit1975McCarthy, Crisanti, and MaffeiSource: Federal Reserve (Richard Cantor/Frank Packer).Our view is that there are very few industries where the top three players have dominated their respective industry for nearly 100 years (to be fair, Standard & Poors was init

36、ially two separate companies and merged in 1941). The US economy has withstood over a dozen wars and recessions, a great depression, a global financial crisis and various changes in financial regulations/oversight, but the credit rating industry today (with three familiar companies) is operating wit

37、h revenues and margins near all-time highs. One obvious reason is that the amount of US debt issued has exploded in the past century as US GDP continues to push higher.Further, financial markets around the world are continuing to open up to international credit investors. While short-term trends in

38、debt issuance grab headlines, we believe having end-market exposure tied to debt issuance is a positive consideration over time. The credit rating industry has enjoyed great secular tailwinds over the past century, and the three leading credit rating agencies are arguably operating in their stronges

39、t competitive position today.Business mof credit ratingsCredit ratings are assigned by independent credit analysts who evaluate data provided by the issuers as well as other sources of information derived from research. The rating presents an opinion regarding the ability of an issuer to meet debt c

40、ommitments and likelihood of default. Following the initial publication of a credit4Year of 1stRatingCredt Rating AgencyMichael Y Cho(1-212) 622-3619michael.choNorth America Equity Research10 July 2019rating with a debt issuance, the analyst, or team of analysts, typically continues to maintain cove

41、rage of the issuer and evaluate the rating.A key turning point for the US credit rating industry was in 1936, when the US Office of the Comptroller of Currency (US Treasury Department) prohibited banks from exposure to speculative financial instruments. State insurance commissions also began to requ

42、ire regulated companies to hold only investment-grade bonds. To the great benefit of the credit rating industry, the determiner of that level of risk was assigned to the credit rating agencies, solidifying the industrys position as a checkpoint in the credit capital markets ecosystem.The original bu

43、siness mof the credit rating agencies was centered on investors.Investors would pay a subscription fee, or research/data fee, for credit ratings andresearch. During the 1970s the credit rating agencies began to collect a fee from theissuers of the credit (in addition to the investors) for assignment

44、 of a credit rating.While theof interest has long been debated, the logic seemed naturalgiven that the value provided to issuers could be quantified in terms of thecredit pricing and market liquidity benefit. Also, keep in mind that the norm formost credit agreements today is to have two independent

45、 credit ratings.With the creation of Nationally Recognized Statistical Rating Organizations (NRSROs) in 1975, the Securities and Exchange Commission (SEC) further institutionalized the usage of credit ratings. The SEC established rules around capital requirements for banks and broker-dealers that al

46、so involved determining how risky certain financial assets should be viewed.Approach to credit rating pricing: small cost but high valueGiven the wide acceptance of credit ratings by issuers and investors, the role of the credit rating for fixed income securities has become virtually un-detachable f

47、or the financial services industry. We view the credit rating agencies as a utility for debt capital markets. We believe S&P and Moodys have tremendous pricing power but will exert their influence from a strategic, long-term perspective. We like to think of the credit rating as a key workflow in

48、put for both investors and issuers in the capital markets process. We believe that as long as the incremental costs and fees for a credit rating remain modest, the credit rating agencies role in the capital markets process has no incentive to meaningfully change in the long term.The value of a credi

49、t rating for an issuer is embedded inherently in the pricing of its credit but it also creates liquidity in the security and enhanced transparency for investors. As market participants can observe, typically, there is a higher benefit for debt that carries a higher associated interest rate. The cost

50、 of a credit rating (list price: 7bps) is very low compared with the bond pricing differential. Also keep in mind that financial institutions will typically not engage new issue credits that come to market without a credit rating (many times as a matter of simple policy).Credit rating categories can

51、 be broadly bucketed into four generic categories: corporate, financial, structured and public/government (see Figure 2).5Michael Y Cho(1-212) 622-3619michael.choNorth America Equity Research10 July 2019Figure 2: Categories of credit ratings CorporateFinancialGovernmentStructuredAsset-backed securit

52、ies/ABSCompaniesBanksLocalBroker / dealerAsset-backed comm. paperUtilitiesFederalFinance companiesCollaterlized loan obligations/CLOSovereignMortgage-backed (RMBS/CMBS)InsurancePublicSource: Company reports and SEC.Each of the categories of debt issuance (loan or bond) can be bucketed into investmen

53、t grade or speculative grade (high yield) depending on their credit profile and default analysis. Ratings on structured products and corporate high-yield issuance are areas with higher fees (and higher margins) given the complexity vs. the other types of transactions. In contrast, government credit

54、ratings and investment- grade ratings (including many banks and insurance companies) generate lower fees. Separately, pricing on a rating for a loan is slightly lower than pricing on a bond.That said, leveraged loans typically lead to more ongoing fee opportunities for the credit rating agencies in

55、the form of CLOs, re-financings and re-pricings.Our sense is that both S&P and Moodys typically look to increase annual prices in the 3-4% range. That said, there are many moving pieces to the equation (e.g., issuance volume, type of issuance, frequent issuer programs, etc.). We believe that the

56、 credit rating agencies approach pricing with a long-term perspective but also mindful of regulatory oversight and public perception.Limited market share shift outside of the big threeThe big three credit rating agencies (S&P, Moodys and Fitch) have earned theoverwhelming share of the credit rat

57、inarket. While there are a number of otheraccredited Nationally Recognized Statistical Ratings Organizations (NRSROs) in the US, none have been able to make a meaningful impact to the big threes market share over the past decade. Keep in mind that credit issuances (in developed markets) have two cre

58、dit ratings. There have been previous attempts to establish new competitors within the ratings industry (particularly Europe), but we observe that most efforts have failed to make a meaningful dent to the competitive landscape ofthe $8bn global credit ratinarket, which has experienced mid- to high-single-digit annual growth in the last decade.