The Information Handler

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IHS Inc. (NYSE: IHS), a global source of information and analytics, offers its products and services in areas like energy and power, supply chain, defense, and so on. IHS thinks of business in the context of the four P's: people, platform, processes, and products, and hence this year it marked the highest level of investment and greatest progress in these critical areas. Vanguard is its platform to support business growth and drive simplification and standardization of business process. On Dec. 3, it achieved another important milestone as it went live with the fourth release of Vanguard.  

Financial Results

It has five firm objectives, and successful execution of these objectives helped it to drive strong results. For the fourth quarter 2012, its revenue increased by 12% to $414 million and EBITDA totaled to $140 million, an increase of 17% from a year ago. Moreover its adjusted EBITDA margin was 33.8% (highest in its history). The growth in revenue includes 4% organic growth and 8% growth from acquisitions. Adjusted EPS increased by 22% to a record level of $1.21 per diluted share in the fourth quarter. Briefly, for the full year 2012 its revenue was $1.53 billion, up by 15% over the prior year, and it ended the quarter with $345 million in cash and $1.06 billion in debt.

The Year Ahead

For 2013 it expects its revenue to lie in the range of $1.64 billion to $1.71 billion, including an overall organic growth rate to vary between 5% to 7%. Moreover, adjusted EBITDA is expected to be in a range of $540 million to $582 million and adjusted EPS between $4.23 and $4.43 per diluted share. As China’s export growth declined nearly by 9% in November, and as Japan moved into recession, it is expected that key business and capital investment decisions will be delayed. With the release of the fourth version of Vanguard, it has great opportunities across the majority of products and offerings, and has 70% of revenues in contracts on a single system.

Take of Competitor

Thomson Reuters Corporation (NYSE: TRI), the world`s leading source of intelligent information for businesses, has announced the launch of a solution to help institutions fulfill and comply with their obligations under the forthcoming US Foreign Account Tax Compliance Act (FATCA). Moreover, it signed a three-year contract with PWC, the company’s auditor, to provide use of the Thomson Reuters ONESOURCE Corporate Tax solution for China. It has reached a deal to buy Practical Law Co. (PLC), a London-based company that provides legal resources and software to law firms. The expansions of Thomson poses a large threat to IHS.

Dun & Bradstreet (NYSE: DNB) carries trailing and forward P/E multiples of 13 and 10, respectively, with a PEG ratio of 0.8. Its third quarter earnings per share were of $1.76. It is a company with rising gross and operating margins, and it often fuels its growth by increasing demand for its products. Over the past five years, its gross margin hiked 73.1% and averaged at 69.8%. The strong financials of Dun is a serious matter of concern for IHS.

Acquisitions

The recent acquisitions by IHS of GlobalSpec and Invention Machine depicts significant development that presents a unique opportunity for IHS to transform its existing engineering specifications and standards business to long-term double-digit growth. It integrated with Invention Machine for approximately $40 million in the fourth quarter, and hence made solid progress by giving customers the ability to semantically search its database of 1.6 million standards and engineering best practices. Next in line was integration with GlobalSpec for $135 million, as a result of which IHS Electronics & Media solutions will create the leading destination for Electronics & Media industry professionals and 7 million engineers globally.

Bottom Line

It created value for its shareholders since its IPO with the compounded annual return of 28%, well above that of its peers in the overall market. Further, since the Great Recession in 2009 it has had a strong performance as it sustained organic subscription growth at 7% or higher for 10 quarters in a row. The shareholder value it creates is bound to give returns for the invested fund and hence going long on IHS is sounding safe.


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