Nasdaq Technology Integration And CCV Launch Will Boost Future Operations

Key Takeaways

• Expected interest rate decline, new services, and regulatory changes may increase transaction volume and listings, driving revenue growth.
  
• Investing in Nasdaq tech and marketing aims to boost efficiency, service offerings, and customer engagement, potentially improving margins and growth.
  
• Regulatory delays and competitive pressures might hinder BMV's revenue growth, affecting fees, market share, and earnings amidst currency fluctuations.

Catalysts

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

• The anticipated decline in interest rates is expected to increase market activity, boosting Bolsa's transaction and post-trade operations, thereby driving revenue growth.
  
• The launch of the Central Counterparty (CCV) services for fixed income trading, pending regulatory approval, is aimed at significantly increasing transaction volume through new offerings in bond trading, positively impacting revenue.
  
• Amendments to the Mexican Securities Market Law, which simplify the listing process and make it more accessible to medium-sized enterprises, are likely to increase the number of equity and debt listings, enhancing revenue from listings and capital formation.
  
• Technological advancements, including a 3-year project to replace in-house infrastructure with Nasdaq technology, are expected to improve operational efficiency and facilitate new service introductions, potentially improving net margins.
  
• The establishment of a new customer development and marketing division signals a strategic push to enhance market presence and customer engagement, which is likely to drive revenue growth in the medium term.

Bolsa Mexicana de Valores. de Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bolsa Mexicana de Valores. de's revenue will grow by 7.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 41.6% today to 35.3% in 3 years time.
• Analysts expect earnings to reach MX$1.7 billion (and earnings per share of MX$3.06) by about February 2028, up from MX$1.6 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 17.6x on those 2028 earnings, up from 11.4x today. This future PE is greater than the current PE for the MX Capital Markets industry at 11.5x.
• Analysts expect the number of shares outstanding to decline by 1.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.76%, as per the Simply Wall St company report.

Bolsa Mexicana de Valores. de Future Earnings Per Share Growth

Risks

• BMV faces regulatory approval delays for its fixed income central counterparty services, which could impede new revenue streams from fixed income trading, impacting overall revenue growth expectations.
  
• A new competitive pricing strategy from a major competitor, BIVA, might force BMV to reduce its fees, potentially impacting its transactional revenue and net margins.
  
• There is continued uncertainty and competitive pressure in the equity trading market, which may affect BMV’s ability to maintain its market share and consistently grow its revenues.
  
• Currency effects, such as the depreciation of the Mexican peso, can unpredictably affect revenue derived from international activities, altering earnings.
  
• New regulatory changes aimed at capital formation may not immediately translate into an increase in listings and issuances, potentially slowing anticipated revenue growth.

Valuation

• The analysts have a consensus price target of MX$36.571 for Bolsa Mexicana de Valores. de 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 MX$43.0, and the most bearish reporting a price target of just MX$30.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$4.8 billion, earnings will come to MX$1.7 billion, and it would be trading on a PE ratio of 17.6x, assuming you use a discount rate of 14.8%.
  
• Given the current share price of MX$32.17, the analyst price target of MX$36.57 is 12.0% higher.
  
• 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.