Euronext (ENX.PA)
- Business Model:
The company offers a range of stock exchange and business services, including securities quotations, cash and derivatives trading, and the dissemination of market data. It is simply an exchange, but it also provides services to other exchanges such as software maintenance, software licensing, and trading software in the form of managed services.
Euronext has several subsidiaries within Europe that they manage. However, they also have subsidiaries in Malta, India, United States. They buy up other exchanges and grow this way. Because they have already built a good infrastructure for the exchanges they have bought, they can run the bought exchange cheaper (cost reduction through economy of scale). Their revenue is divided among the following segments:
- Listing (15,4%)
- Trading Revenue (37%)
- Investor Services (0.8%)
- Advanced Data Services (14.7%)
- Post-Trade (26%)
- Euronext Technology Solutions & Other (6.2%)
(source: https://www.euronext.com/en/investor-relations/financial-information/financial-reports)
Sector **Industry:**Financial Services Financial Data & Stock Exchanges
- Category (Peter Lynch):
Stalwarts:
The company is currently growing organically by 5% (from annual reports, CAGR) and is buying up other exchanges in order to expand and thus increase their moat.
(source: https://www.euronext.com/en/investor-relations/financial-information/financial-reports)
Definition Stalwarts:
A large, well-established company that still offers long-term growth potential.
- Financial Position/ Profitability
ROIC 7 % (dalende trend)i , Net Profit Margin (+- 30% over 5 jaar),
D/E: Around 1.5 with ROE of 30/25%, Current Ratio (1.05), Quick Ratio (1.05). Considering the number of acquisitions they make, their debt and liabilities are not bad. Fine balance sheet in general.
(source: https://www.financialstockdata.com/ for all ratios (historical) and historical financial data. Sometimes differs per site bit per site).
- Management
- Outstanding Shares
Outstanding shares have been virtually flat over the years. They have not announced a buyback program and so they do not dilute shareholders.
(source: https://www.financialstockdata.com/ for historical shares outstanding)
- Compensation (CEO)
The CEO's salary has increased in relation to earnings. Except in 2019 when it increases while earnings decline. Furthermore, in relative terms, salary rises slightly faster than company earnings.
- Dividend
At the time of writing the company has a Dividend Yield of 1.7%, a payout ratio of ~30% ( differs per site a bit, did not manually calculate it). It has not risen continuously they have lowered it in 2018.
(source: https://www.financialstockdata.com/ for historical dividends, payout ratio (differs between sites a bit the yield en the payout ratio))
- Moat: Competitive advantage
Efficient Scale/Scale Economics
The moat that Euronext has is the Efficient Scale/Scale Economics. They have a large infrastructure and distribution network with which they reduce costs when they take over an exchange. And new exchanges in a country are not really set up.
- Intrinsic Value
Macro Economische Factoren
With the low-interest rates, Euronext is currently benefiting from the fact that more “savers” will try their luck on the stock market. This means more trades in the shares and that, of course, results in higher turnover for the “Trading Revenue” segment. If ECB were to raise interest rates, this could of course result in fewer trades and thus less trading volume. At the time of writing, 47 percent of their revenue is dependent on trading volume. A market correction or crash is part of the bear case when you look at that.
Discounted EPS
I have determined an EPS-based intrinsic value on the organic growth that the company expects so without acquisitions. This is to get an idea, market conditions are clearly one of the risk factors of the company. I always use a discount rate of 10 percent, here I used a growth rate of 4 percent, and a terminal value of 12. The value then comes down to 58 euros, while the share is priced at 82 euros. With this value, there is currently no Margin of Safety. Also given the market conditions now, keep in mind that this is a conservative valuation as it is only based on organic growth. I think it is a very interesting company and I will certainly put it on my watchlist, but for the moment I do not see a Margin of Safety in it.
In the event of a market correction or crash, this could certainly be a real bargain for me if the market reacts even more to the then-prevailing fall in volume-based sales and profits (IPOs are also almost non-existent then, of course).
Do not forget with DCF's you have a lot of freedom in what you choose, that is why they can differ a lot and that is why I always do it conservatively, it gives you an idea what you should pay for a company or when it is a bit too much and that is great. But the number is not exact. You can see it more as eyeballing and it depends on how well you know the company how much growth you think you can put in.
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