The views expressed below are those of Anchor Capital Advisors, LLC (“Anchor”) as of the date written and are subject to change at any time. They are based on our proprietary research of the stated company and the following is a summary of the primary factors that support our beliefs and rationale for investing in the company. Please see additional disclosures at the end of this publication.
Clarivate PLC provides trusted insights and analytics to accelerate the pace of innovation with the portfolio businesses including Life Science, Web of Science, Compumark, and MarkMoniter.
In our opinion, Clarivate has potential to increase price, upsell, and grow mid-single digits over time. We believe the company’s free cash flow will normalize, and that it is run by a charismatic CEO, Jerre Stand. Over time, Stand helped build IHS Markit from a small public company into a $30 billion plus company.
Confirmation through Research
In our opinion, the company has the ability to increase price 4% to 5% per year based on 3 surveys CLVT conducts per year on their top 800 to 900 customers. We believe that cross sell opportunity could add 2% to 3% growth, based on the 30,000 customers they have to upsell. Furthermore, we believe the company has large white space with their 180 largest customers, and could double revenue in those accounts. Because of this, we anticipate CLVT could get to high single digit growth between pricing, upsell, and whitespace. In terms of free cash flow, we believe the business should convert 80% of EBITDA into free cash flow over time, or $700m in free cash flow a few years out. Lastly, Jerre Stand was at IHS Market, and IHS Markit was up 50x in 15 years. We believe he will help this high quality business, especially on the acquisition side.
We do not believe the market is assigning fair value to the business considering the pricing power, ability to upsell, the white space, and the quality of the CEO. It is our opinion that on top of the short-term lack of valuation – the organic growth, coupled with strong acquisitions, will lead this business valuation to compound over time.