Digital Transformation And Horizon 2026 Will Drive Future Success

Key Takeaways

• The Horizon 2026 strategy emphasizes organic growth and digital advancements, aiming for increased revenues through financial derivatives, fund services, and FX digital development.
  
• Expansion efforts focus on synergies and net margin enhancement through strategic integrations and partnerships, potentially elevating earnings and shareholder value.
  
• Potential regulatory challenges, investment constraints, and strategic financial moves could impact growth, revenue, earnings visibility, and net margins for Deutsche Börse.

Catalysts

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

• Deutsche Börse's Horizon 2026 strategy supports strong organic growth by focusing on net revenue without treasury results, targeting an 8% growth rate over the next two years, driven by financial derivatives and growth in fund services and the FX digital complex. This should lead to increased revenues.
  
• Expansion and integration in the Investment Management Solutions segment, including the ISS Stoxx and SimCorp with Axioma analytics, aim for further synergies across the group, enhancing net margins and earnings potential.
  
• Advances in digitalization through partnerships with Google Cloud, Microsoft Azure, and SAP, along with pioneering crypto and fund services solutions, position Deutsche Börse for industry leadership in digital offerings, leading to enhanced operational efficiencies and potentially higher net margins.
  
• A disciplined capital allocation strategy under Horizon 2026 includes a €500 million share buyback in 2025 and a proposed dividend increase, which should positively impact earnings per share (EPS) and investor returns.
  
• Strategic moves like exploring an IPO or acquiring the remaining stake in ISS Stoxx, alongside maintaining majority control, offer potential growth in shareholder value and consolidation of earnings contributions from this segment.

Deutsche Börse Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Deutsche Börse's revenue will decrease by 1.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 27.7% today to 34.1% in 3 years time.
• Analysts expect earnings to reach €2.3 billion (and earnings per share of €12.75) by about March 2028, up from €1.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.0x on those 2028 earnings, down from 25.6x today. This future PE is greater than the current PE for the GB Capital Markets industry at 20.0x.
• Analysts expect the number of shares outstanding to decline by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.75%, as per the Simply Wall St company report.

Deutsche Börse Future Earnings Per Share Growth

Risks

• The company faces potential regulatory challenges that may slow down expected growth in the fixed income and financial derivatives segments, which could impact revenue projections.
  
• Growth in the Investment Management Solutions segment might be constrained due to pressure on the non-ESG business, potentially affecting the overall earnings contribution from this segment.
  
• The move to focus on annual recurring revenue in the Software Solutions business might result in revenue recognition timing issues, impacting short-term earnings visibility.
  
• Capital allocation decisions, such as the potential IPO of ISS Stoxx or acquiring the remaining stake from General Atlantic, could lead to financial risk or reduce the ability to invest in other growth opportunities, thereby impacting net margins.
  
• Changes in interest rates could alter expected treasury results, affecting overall revenue as forward-looking interest rate assumptions are significant influencers on financial outcomes.

Valuation

• The analysts have a consensus price target of €248.059 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 €275.0, and the most bearish reporting a price target of just €220.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €6.8 billion, earnings will come to €2.3 billion, and it would be trading on a PE ratio of 23.0x, assuming you use a discount rate of 5.7%.
• Given the current share price of €272.0, the analyst price target of €248.06 is 9.7% lower. 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.