Decentralized Finance Will Erode Fee Revenue In Latin America

Key Takeaways

• Rising decentralization and competition from global and alternative trading platforms threaten BMV's market relevance, pricing power, and fee-based revenue.
  
• Limited product diversification and domestic market reliance expose BMV to greater earnings risk during regional economic downturns or low market activity.
  
• Strengthening capital formation, technological upgrades, diversified services, and enhanced retail participation position BMV for sustained revenue growth and greater market relevance.

Catalysts

Bolsa Mexicana de Valores, S.A.B. de C.V.

• The accelerating digitization of financial services and growing adoption of decentralized finance may facilitate alternative means of investing and trading that do not require traditional exchanges; over the long term, this creates structural risk for trading volumes and fee-based revenue as a portion of order flows migrate away from central venues like Bolsa Mexicana de Valores.
  
• The global trend towards exchange consolidation, technological leapfrogging by international peers, and rising cross-border trading mechanisms threaten to erode BMV's market relevance and pricing power-ultimately pressuring both topline revenue and net margins as issuers and investors shift to more efficient or competitive platforms.
  
• BMV's heavy exposure to the domestic equity market and the limited pace of diversification in its product suite mean its earnings remain vulnerable to prolonged periods of low interest rates and weak economic growth in Latin America, thereby increasing the risk of revenue contraction if local capital raising or trading activity stalls.
  
• Despite significant ongoing CapEx and technology upgrades, there is operational risk that investments will lag global standards or fail to translate into meaningful market share gains, resulting in suboptimal returns on invested capital and persistent margin pressure from rising technology and compliance costs.
  
• As alternative trading venues such as dark pools, OTC, and fintech-driven API solutions proliferate, BMV may face increased liquidity fragmentation and lower trading frequency on its core platforms, which could directly depress transaction and information service fees and lead to long-term compression of earnings.

Bolsa Mexicana de Valores. de Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Bolsa Mexicana de Valores. de compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Bolsa Mexicana de Valores. de's revenue will grow by 6.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 41.0% today to 36.8% in 3 years time.
• The bearish analysts expect earnings to reach MX$1.9 billion (and earnings per share of MX$3.39) by about August 2028, up from MX$1.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.1x on those 2028 earnings, up from 13.0x today. This future PE is greater than the current PE for the MX Capital Markets industry at 11.2x.
• Analysts expect the number of shares outstanding to decline by 1.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.08%, as per the Simply Wall St company report.

Bolsa Mexicana de Valores. de Future Earnings Per Share Growth

Risks

• The imminent revival of the Mexican IPO market, with several confidential filings and FIBRA listings in the pipeline, could signal the start of a multi-year tailwind for capital formation fees and a resurgence in revenue.
  
• The launch and integration of the bond central counterparty (CCP), along with regulatory support for expansion into repos and other fixed-income instruments, positions BMV to capture greater transaction volumes and diversify its revenue streams over the long term.
  
• Ongoing advances in trading technology and digital infrastructure-including virtual colocation and cloud-based trading platforms-are expected to enhance efficiency, broaden access to markets for international and retail participants, and over time improve net margins through operating leverage.
  
• Strategic expansion of data and analytics services, accelerated by global partnerships and the rise of AI-driven tools, is resulting in double-digit growth in information services revenue, supporting both topline earnings and margin expansion.
  
• Rising participation by retail investors, aided by lower fees and tailored market access initiatives, is laying the groundwork for sustained growth in trading volumes and underlying transaction revenue in the years ahead.

Valuation

• The assumed bearish price target for Bolsa Mexicana de Valores. de is MX$36.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Bolsa Mexicana de Valores. de's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$53.0, and the most bearish reporting a price target of just MX$36.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be MX$5.1 billion, earnings will come to MX$1.9 billion, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 16.1%.
  
• Given the current share price of MX$39.98, the bearish analyst price target of MX$36.0 is 11.1% 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.