Holdings Update: Buy Verisk Analytics
Jensen Investment Committee Adds Verisk to Quality Growth Model Portfolio (“Model Portfolio”).
Founded in 1971, Verisk Analytics (Verisk) is a data analytics provider serving customers in the property and casualty (P&C) insurance, natural resources, and financial services end markets. Verisk customers include insurance companies, credit card issuers, and energy providers around the world. More than 80% of Verisk’s revenue is derived from subscriptions and/or long-term service agreements.
Network effect is the primary competitive advantage across Verisk’s business. They operate within a consortium that runs a ‘give-to-get’ business model where customers provide raw data to Verisk free of charge. In return, Verisk anonymizes the data, builds industry-specific analytics, and sells these solutions back to customers. These tools often become integrated into customer workflows which creates high customer switching costs.
We expect Verisk to grow and create business value due to pricing power, end market growth, and new product development. For example, Verisk recently launched data collection agreements with auto manufacturers designed to track and understand driver behavior. This data can be converted into analytics to assist auto insurers in optimizing the price of insurance policies.
Our investment thesis incorporates concerns, notably increasing competition in the financial services end market and cyclical demand patterns among energy customers. However, we view these risks as manageable due to the diversity of Verisk’s customer base and the high degree of revenue generated under subscription agreements.
Verisk demonstrates many of the Quality Growth attributes we favor, including competitive advantages, high returns on capital, and consistent free cash flow generation. We are pleased to add it to the Model Portfolio.
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