Euroclear Integration And Technology Investments Will Improve Future Operations

Key Takeaways

• Strategic expansion and business diversification are expected to drive future revenue growth and strengthen post-trade services.
  
• Investment in technology, infrastructure, and share repurchase initiatives may enhance efficiencies, margins, and EPS growth.
  
• Major investments and acquisition risks alongside currency fluctuations and economic volatility could challenge revenue stability and profitability.

Catalysts

Operates securities and derivatives exchanges in Continental Europe, Ireland, and Norway.

• Euronext's strategic expansion through business diversification, including the acquisition of NASDAQ's Nordic power future business and launch of cash-settled mini futures on European government bonds, is expected to drive future revenue growth.
  
• Investment in operational technology and infrastructure in 2025 is positioned to enhance efficiencies and synergies, potentially improving net margins over the long run.
  
• The integration of Euronext Clearing with Euroclear for enhanced collateral management is expected to strengthen the company's post-trade services, driving clearing revenue and potentially increasing net income.
  
• Euronext's aggressive share repurchase program and improved capital structure, demonstrated by an upgraded credit rating, contribute to potential EPS growth as the number of outstanding shares decreases.
  
• Continued strong performance in trading and data services, driven by increased volumes and demand for advanced data sets, is anticipated to support consistent revenue and earnings growth.

Euronext Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Euronext's revenue will grow by 5.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 36.0% today to 37.4% in 3 years time.
• Analysts expect earnings to reach €709.2 million (and earnings per share of €7.25) by about February 2028, up from €585.6 million 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 20.8x on those 2028 earnings, down from 21.1x today. This future PE is greater than the current PE for the GB Capital Markets industry at 16.9x.
• Analysts expect the number of shares outstanding to decline by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.45%, as per the Simply Wall St company report.

Euronext Future Earnings Per Share Growth

Risks

• The substantial investment year anticipated for 2025, as mentioned, could lead to increased costs that may not be immediately offset by revenue gains. This could impact net margins negatively during this period.
  
• The acquisition of NASDAQ's Nordic power futures business, while an opportunity, is subject to regulatory approvals and market acceptance, posing integration and market entry risks that could affect future revenue and earnings if not managed well.
  
• The listing revenue growth faced headwinds from currency fluctuations, specifically the depreciation of the Norwegian krone, which may continue to impact revenue if exchange rates remain unfavorable.
  
• While the company has experienced strong growth in trading revenues, particularly in fixed income and FX trading, these sectors could be highly sensitive to broader economic and market volatility, potentially impacting future revenue stability.
  
• Significant reliance on non-volume related revenues, which accounted for 59% of total revenues, means any regulatory changes or market dynamics affecting these areas could materially affect future revenue streams and profitability.

Valuation

• The analysts have a consensus price target of €118.644 for Euronext 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 €139.0, and the most bearish reporting a price target of just €90.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.9 billion, earnings will come to €709.2 million, and it would be trading on a PE ratio of 20.8x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of €119.0, the analyst price target of €118.64 is 0.3% 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.