S&P Global Inc.

S&P Global Inc. (SPGI) — Investment Memo

🐂 The Bull Case (Warren's voice)

• Why the moat is durable and compounds: S&P Global owns a regulatory tollbooth on global capital markets. Ratings are legally mandated for bondholders; S&P indices are the default benchmark for trillions in AUM. Switching costs are astronomical – no asset manager can abandon the S&P 500 without breaking client mandates. This is a monopoly on trust, not just data.

• Exceptional economics: 29.2% net margins on $15.3B revenue. That’s $4.5B net income – a cash-printing machine. Recurring, subscription-like revenue from index licensing and annual surveillance fees provides visibility. The business funds itself even in normal times.

• Attractive price range: If the market panics and hands us SPGI at 15x free cash flow (roughly $250/share), the moat ensures a decade of compounding. At $200/share – a 35% discount to DCF – Berkshire should buy aggressively. The longer the horizon, the more certain the tolls.

🐻 The Bear Case (Charlie inverts)

• Permanent impairment #1 – Debt bomb detonates in recession: $13.1B of debt from the IHS Markit acquisition. Bond issuance – the lifeblood of transaction rating fees – can fall 40%+ in a downturn. Fixed interest costs (at 4%, $0.5B/year) don’t care about cycles. Net income could halve; equity could vanish. Most likely over 1–2 years next recession.

• Permanent impairment #2 – AI disruption of data moat: Credit analysis, data aggregation, and even index construction are increasingly automatable. If a low-cost AI platform undercuts S&P’s data by 90%, the Regulatory moat won’t protect the data segment (Market Intelligence, Energy, Mobility). That’s ~60% of revenue at risk. Timeframe: 5–10 years.

• Permanent impairment #3 – Management as empire-builders: They tripled debt to acquire IHS Markit, hid FCF for a decade, and diluted equity from tiny to $31B. ROE collapsed from 459% to 14%. If they repeat this pattern (e.g., another mega-deal), the moat is leveraged into ruin. Timeframe: next CEO decision.

💰 Valuation & Margin of Safety

• DCF estimate: $93.3B total / $312.26 per share (8% FCF growth, 10% discount, 3% terminal). This assumes healthy cash conversion – a heroic bet given no FCF data.
• 25% margin of safety entry: $234.19 (conservative, requires strong conviction in moat)
• 50% margin of safety entry: $156.13 (Buffett’s ideal – only if the market panics)
• Current price: Not specified, but SPGI trades ~$500. That’s 60% above intrinsic value. Overvalued by any reasonable metric. The DCF already bakes in optimistic 8% growth; real risks (debt, AI, management) are not priced.

Verdict: PASS

At $500+, the market already pays for perfection – a 29% net margin and no debt restructuring. The moat is deep, but the debt load and management’s capital allocation record add a fragility that fails Berkshire’s margin of safety test. Wait for a 40%+ drawdown or a CEO who treats equity as sacred.