Deutsche Börse — On track to meet strategic targets

Deutsche Börse (DB11)

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Deutsche Börse — On track to meet strategic targets

Deutsche Börse (DB1) is a leading European capital markets infrastructure provider across pre-trading, trading and clearing, and post-trade segments. It is following a road map designed to secure faster growth including both organic and M&A elements. At the Q3 stage, the group reported that it is making progress in line with its objectives. DB1 is keen to use its available cash and debt capacity (up to c €2bn) for acquisitions that meet its criteria; these are set to be both lower risk and less transformational than London Stock Exchange’s Refinitiv transaction.

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Written by

Deutsche Börse

Financial services

Price

€139.80

Market cap

€27bn

Share price graph

Share details

Code

DB1

Shares in issue

190m

Net debt/annualised, adjusted EBITDA

0.9

Business description

Deutsche Börse is a major European financial markets infrastructure provider with ambitions for global growth. Its operations cover the full capital markets value chain and are managed in nine business segments including: financial derivatives (Eurex), commodities (EEX), foreign exchange (360T), post-trade services (Clearstream), investment fund services (IFS), collateral management (GSF), indices and analytics (Qontigo), data provision and cash equities (Xetra).

Bull

A well-established leading position in European derivatives.

A number of business areas have very high growth prospects.

Diversification between trading, pre- and post-trading and clearing activities.

Bear

Subject to capital market cyclicality.

Competition or regulatory change could affect profitability in some areas.

There is some implementation risk associated with the strategic plan.

Analyst

Andrew Mitchell

+44 (0)20 3077 5700

Deutsche Börse is a client of Edison Investment Research Limited

On track to meet strategic targets

Deutsche Börse (DB1) is a leading European capital markets infrastructure provider across pre-trading, trading and clearing, and post-trade segments. It is following a road map designed to secure faster growth including both organic and M&A elements. At the Q3 stage, the group reported that it is making progress in line with its objectives. DB1 is keen to use its available cash and debt capacity (up to c €2bn) for acquisitions that meet its criteria; these are set to be both lower risk and less transformational than London Stock Exchange’s Refinitiv transaction.

Progressing with strategic plan

Deutsche Börse set out its strategic plan, Roadmap 2020, last year. This aims to accelerate both long-term and cyclical growth. Key pillars of the plan are organic growth, focused M&A, maintaining technology leadership and disciplined execution, including cost management. Financial targets for the 2017–20 period include: secular, organic compound annual growth in net revenue of over 5%; net pre-exceptional organic profit CAGR of 10–15%; dividends equivalent to 40–60% of net profit subject to business conditions; net debt below 1.75x EBITDA; and a structural cost reduction of €100m by the end of the period (currently running ahead of plan).

Q319 result and outlook

Adjusted for exceptional items, DB1’s Q319 net revenues increased by 13% y-o-y, while costs, depreciation and impairments together rose by less than 8%, allowing pre-tax profit growth of 16% (net profit +18% to €282.9m). Exceptional costs of €46m in the period were primarily associated with acquisitions and measures to reduce costs as part of the strategic plan. On a reported basis, net profit increased by 10% y-o-y to €248.6m. One of the acquisitions completed in Q3 was Axioma, a global supplier of multi-asset class portfolio and risk management software and analytics. This has been merged with the STOXX index business to form a new segment, Qontigo. Within the overall revenue growth, secular growth contributed 6% (in line with the plan), cyclical changes 6% and acquisitions 1%. Secular growth drivers included new products, OTC clearing and pricing at Eurex (financial derivatives), together with growth in EEX (commodities), Qontigo, 360T (foreign exchange) and IFS (investment fund services). Looking ahead, DB1 reiterated its expectation for adjusted net income growth of 10% for FY19.

Valuation: P/E trails global peers

DB1 trades on prospective P/E multiples below its global exchange peers, which appears cautious given the group’s diversification and structural growth plans.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/17

2,462

1,289

4.68

2.45

29.9

1.8

12/18

2,780

1,157

4.46

2.70

31.3

1.9

12/19e

2,935

1,507

5.78

2.98

24.2

2.1

12/20e

3,131

1,666

6.43

3.19

21.7

2.3

Source: Refinitiv

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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

New York +1 646 653 7026

1,185 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

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

1,185 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

General disclaimer and copyright

This report has been commissioned by Company name and prepared and issued by Edison, in consideration of a fee payable by Company name. 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

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

1,185 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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