Margins Expected To Decline, But Consolidated Tape May Bring Future Opportunities

Key Takeaways

• Strong growth in Aquis Technologies highlights potential increased revenue from national exchanges and central banks.
  
• Investments and cloud technology adoption position Aquis Exchange to expand its market share and enhance revenue.
  
• Aquis Exchange's growing technology pipeline, strategic investments, and focus on market share and geopolitical stability position it for sustained revenue and profit growth.

Catalysts

Operates as a multilateral trading facility in Europe.

• Strong growth and increased contract pipeline in Aquis Technologies, with many potential customers being national exchanges or central banks, indicating potential increases in future revenue.
  
• Investing £6.2 million over the next 3 years to capitalize on opportunities across multiple asset classes, expected to drive conversion rates and future earnings.
  
• Consolidated tape expected to generate additional data revenue starting in 2027, potentially impacting long-term earnings.
  
• A move to cloud technology and leveraging proprietary solutions, positioning the company to capture a larger total addressable market, potentially enhancing revenue.
  
• Anticipated growth in market share in Aquis Markets Division, aiming to exceed 10% through innovative products, which could boost both revenue and net margins.

Aquis Exchange Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aquis Exchange's revenue will grow by 13.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 20.8% today to 19.2% in 3 years time.
• Analysts expect earnings to reach £6.7 million (and earnings per share of £0.23) by about February 2028, up from £5.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.5x on those 2028 earnings, down from 37.2x today. This future PE is greater than the current PE for the GB Capital Markets industry at 12.0x.
• Analysts expect the number of shares outstanding to grow by 1.02% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.12%, as per the Simply Wall St company report.

Aquis Exchange Future Earnings Per Share Growth

Risks

• Aquis Exchange has seen a significant increase in its technology contract pipeline, with many potential clients being national exchanges or central banks, potentially leading to increased long-term revenue.
  
• The company has reported a 17% growth in data revenues period-on-period, driven by price increases and new fees, suggesting potential for sustained revenue growth.
  
• Strategic investment lies in leveraging existing free cash flow to boost technology offerings' conversion rates and shorten implementation times, likely improving future earnings.
  
• The expected implementation of a consolidated tape by 2027 presents a potential major revenue opportunity for Aquis, particularly in data revenue growth.
  
• Aquis's strategic focus on increasing market share and achieving innovation within their core markets, alongside improved geopolitical stability, suggests future opportunities for enhanced market volumes, potentially boosting overall revenues and profits.

Valuation

• The analysts have a consensus price target of £6.15 for Aquis Exchange based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £34.9 million, earnings will come to £6.7 million, and it would be trading on a PE ratio of 30.5x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of £7.0, the analyst price target of £6.15 is 13.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.