Capital Markets Innovation And Critical Integration Propel Future Growth Potential

Key Takeaways

• Strategic Horizon 2026 plan centers on capital markets infrastructure growth and disciplined capital allocation, supporting revenue and EPS growth through core business expansion.
  
• Focus on digital leadership and acquisitions, like SimCorp, aims to enhance product offerings and operational efficiency, boosting net margins and revenue.
  
• Potential underperformance in market segments, regulatory dependencies, and acquisition risks could impede revenue growth and impact earnings.

Catalysts

Operates as an international exchange organisation in Germany, Rest of Europe, America, and the Asia-Pacific.

• Deutsche Börse's strategic Horizon 2026 plan focuses on enhancing its capital markets infrastructure position, accelerating its net revenue growth, especially by focusing more on net revenues without treasury results, indicating a focus on fundamental business expansion over external market conditions. This is likely to impact revenue and earnings growth.
  
• The integration and synergies expected from recent acquisitions, particularly in the Investment Management Solutions segment centered around SimCorp, should drive future growth. This will positively impact net margins and revenue by optimizing operations and enhancing product offerings.
  
• Deutsche Börse's commitment to disciplined capital allocation, while completing ongoing integrations before further larger-scale M&A, is set to maintain steady dividend growth and share buybacks. This approach will support sustained EPS growth.
  
• The group's focus on digital leadership, with significant progress in cloud-based solutions and institutional crypto activities, aims to position Deutsche Börse at the forefront of market innovation. This strategy is expected to boost revenue and operational efficiency.
  
• The regulatory environment and secular trends, such as the increased need for clearing and risk management solutions, particularly in fixed income markets, are anticipated to provide substantial growth opportunities, potentially enhancing net revenue and market share over time.

Deutsche Börse Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Deutsche Börse's revenue will decrease by -4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.8% today to 33.0% in 3 years time.
• Analysts expect earnings to reach €2.0 billion (and earnings per share of €10.95) by about November 2027, up from €1.8 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €2.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.7x on those 2027 earnings, up from 21.0x today. This future PE is lower than the current PE for the GB Capital Markets industry at 24.2x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.43%, as per the Simply Wall St company report.

Deutsche Börse Future Earnings Per Share Growth

Risks

• The guidance suggests that interest rates peaking this year will start to turn into a cyclical headwind beginning in 2025, which could impact net interest income and pressure net revenue growth.
  
• The potential underperformance in the Market Intelligence business, driven by market conditions and competitive pressures, could hinder growth in the Investment Management Solutions segment, affecting overall net margins.
  
• There is a noted dependency on the successful integration of recent acquisitions like SimCorp, which carries execution risks and may impact the realization of expected synergies, potentially affecting earnings.
  
• EEX's current market share gains partially depend on quant trading, which remains low at 15%, suggesting that future gains may be less significant and could impact anticipated revenue growth.
  
• The fixed income roadmap is heavily reliant on regulatory support and market conditions, which, if not favorable, may impair projected revenue contributions from new products and regulatory changes, affecting top-line growth.

Valuation

• The analysts have a consensus price target of €222.12 for Deutsche Börse based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €242.0, and the most bearish reporting a price target of just €194.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €6.1 billion, earnings will come to €2.0 billion, and it would be trading on a PE ratio of 23.7x, assuming you use a discount rate of 5.4%.
  
• Given the current share price of €212.0, the analyst's price target of €222.12 is 4.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.