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Strong base for organic and M&A growth

Deutsche Börse 25 October 2021 QuickView
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Deutsche Börse

Strong base for organic and M&A growth

Financial services

Deutsches Eigenkapitalforum 2021

25 October 2021

Price

€145.3

Market cap

€27bn

Share price graph

Share details

Code

DB1

Shares in issue

183.5m

Net debt/annualised EBITDA

1.8

Business description

Deutsche Börse is a major European financial markets infrastructure provider with ambitions for diversifying international growth. Its operations cover the full capital markets value chain and are managed in eight business segments: financial derivatives (Eurex), commodities (EEX), foreign exchange (360T), post-trade services (Clearstream), investment fund services (IFS), cash equities (Xetra), indices and analytics (Qontigo), and institutional shareholder services (ISS).

Bull

A well-established leading position in European derivatives.

A number of business areas with high growth prospects.

Diversification across trading, pre- and post-trading activities.

Bear

Subject to capital market cyclicality.

Delivery of secular growth element of strategy carries risk.

Some pricing and execution risk attached to M&A.

Analyst

Andrew Mitchell

+44 (0)20 3077 5700

Deutsche Börse (DB1) is a leading European capital markets infrastructure provider with activities across pre-trading, trading and clearing, and post-trade segments. Its diversity provides resilience to fluctuations in market activity and encompasses a range of faster growing areas that can fuel the secular growth element of its strategy. M&A is seen as an important potential source of additional capability and growth.

A broad market infrastructure business

Deutsche Börse’s largest four segments by revenue and EBITDA are Eurex (financial derivatives), which contributed 31% of 9M21 EBITDA; Clearstream (custody, settlement, collateral management and other post-trade activities), 23%; IFS (investment fund services), 13%; and Xetra (cash equities), 12%. The remaining 21% of EBITDA was generated by EEX (spot and derivative commodity markets), 360T (foreign exchange), Qontigo (indices, including Stoxx and Dax, and portfolio construction and risk analysis tools) and, acquired this year, ISS (institutional shareholder services, including ESG). Geographically, Europe as a whole accounts for c 87% of revenue, including 25% Germany and 20% UK with 13% arising in the Americas and Asia (FY20 figures). Finally, revenue is split c 53/47% (H121) between transactional and recurring.

Strategy combines secular and M&A growth

In November 2020, DB1 set out its Compass 2023 medium-term plan targeting continued secular growth and an increased contribution from M&A. The focus is on expanding in activities with exposure to asset classes that have structural growth prospects. Drivers of organic growth include the continuing shift from OTC to on-exchange trading, the increasing importance of ESG, growth in passive investing and digitisation of the financial sector. Financial targets in the plan include 10% compound annual revenue growth for 2019–23 with 5% each from secular growth and M&A. The aim is to achieve 10% CAGR in EBITDA and EPS as well. So far, the group is on track with better than expected secular growth. It has acquired ISS, which boosts its ESG exposure and expects to close the acquisition of two-thirds of Crypto Finance in Q421. DB1 has also benefited from its portfolio of minority investments, which provide exposure to activities related to the group’s value chain.

Valuation: Prospective P/Es below peer average

Deutsche Börse trades on prospective multiples that are below the average for large exchange peers. Execution of the strategic plan is not risk free, but existing diversification, strong market positions and areas of growth potential are positives.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/19

2,936

1,398

5.47

2.90

26.6

2.0

12/20

3,214

1,528

5.89

3.00

24.7

2.1

12/21e

3,467

1,683

6.58

3.21

22.2

2.2

12/22e

3,732

1,818

7.12

3.42

20.4

2.4

Source: Deutsche Börse, Refinitiv collected consensus estimates

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

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1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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