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Research: Financials
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 also seen as a potential source of additional capability and growth.
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Deutsche Börse |
Seeking secular growth augmented with M&A
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Financial services |
Deutsches Eigenkapitalforum 2020
19 October 2020 |
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EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES. |
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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 also seen as a potential source of additional capability and growth.
A broad market infrastructure business
Deutsche Börse’s largest three segments by revenue and EBITDA are Eurex (financial derivatives), which contributed 41% of H120 EBITDA; Clearstream (custody, settlement, collateral management and other post-trade activities), 27%; and Xetra (cash equities), 12%. The remaining c 20% of EBITDA is generated by EEX (spot and derivative commodity markets), 360T (foreign exchange), IFS (international fund services) and Qontigo (indices, including Stoxx and Dax, and portfolio construction and risk analysis tools). By asset class exposure, 50% of revenues are equity or index related, 25% fixed income, 9% commodities, 6% funds and 3% FX, while 7% is accounted for by interest income. Geographically, Europe as a whole accounts for 88% of revenue, including 30% UK and 22% Germany, with 12% arising in the Americas and Asia. Finally, revenue splits 52/48% between transactional and recurring.
Strategy identifies a range of opportunities
The group is due to present its strategy and new mid-term plan for the next three years on 18 November under the title ‘Compass 2023’. The group has made it clear that secular growth and M&A will remain as the main pillars of its strategy. When it discusses secular growth, Deutsche Börse refers to opportunities created by regulatory change and new client requirements. Examples include growing demand for exchange-traded rather than over-the-counter transactions, the switch from active to passive investments and the trend towards central clearing. Key segments with opportunities for secular growth are Eurex, EEX, 360T, IFS and Qontigo. The group looks closely at many M&A opportunities and seeks to exercise price discipline.
Undemanding valuation versus major peers
Deutsche Börse trades on prospective P/E multiples that are below the average for large exchange peers. Given its diversified business model, strong market positions and growth potential in a number of areas, this does not appear demanding.
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Edison estimates
Source: Deutsche Börse, Refinitiv collected consensus estimates |
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Research: Financials
Lloyd Fonds (LF) continues its operational realignment process with Strategy 2023/2025 initiated in FY20. The new business model has been implemented under the Lloyd Liquid Assets segment, with €1.1bn of AUM gathered so far, and management reiterated its target to reach €7bn by 2024. The AI-based portfolio management (LAIC) has been successfully launched, with €15m in AUM raised so far. While the company reported a net loss in H120 results due to continued transformation costs and the COVID-19 crisis, management expects H220 to break even.