While it is not something I actively monitor, I was somewhat...

While it is not something I actively monitor, I was somewhat surprised tonight to see this stock having grown into being one of my top five shareholdings. (Somewhat disconcertingly, I sense the average P/E of my top 10 holdings is now probably close to 30x.  I suspect I'm not alone in that regard.)

To SNL, while they pre-released the Revenue and NPAT numbers a month ago, I find it is always instructive to see the composition of the result, and how NPAT fell where it did.

The standout aspect of the result was the Gross Profit Margin in the second-half which, at 43.3%, was the highest level in a decade. That strong number occurred in tandem with no discernible impact on the strong sales growth is a telling statement about the depth and width of SNL's competitive moat.

In fact, if one wanted to see a textbook formation of a competitive moat, I think the following long-term charts describe it very well:

While SNL's Gross Profit Margin around 42% to 43% isn't anything to write home about, it is reasonably consistent over time:


But the success of the company comes from the Cost-of-Doing business increasing at a slower rate than Revenue growth, a discipline which surprisingly few companies are able to demonstrate as they scale-up:



Combining those two gives this picture:



And when that sort of operating margin experience is combined with consistent top line growth, the final result is explosive growth in operating earnings.

This business is an MBA case study of how finance theory actually works in practice.

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