ETFs And New Platform Watts Set To Influence Future Market Dynamics

Key Takeaways

• Significant equity trading growth driven by IPOs may boost future revenue and market activity.
  
• Cost optimization and strategic focus on ETFs and infrastructure aim to enhance efficiencies and trading revenue growth.
  
• Increased employee and IT costs, platform delays, reliance on large IPOs, and operational challenges could pressure profit margins and threaten overall revenue growth.

Catalysts

Operates a stock exchange in Poland.

• The Warsaw Stock Exchange has seen a significant growth in equity trading turnover, with notable increases from IPOs such as the ZabKa Group, which could catalyze further IPO activity and enhance equity market turnover, driving future revenue growth.
  
• The robust increase in gas and electricity turnover volumes, particularly due to improvements in the domestic energy production sector, suggests potential for continued growth in commodity market revenues even as the electricity trading segment faces stabilization.
  
• The cost optimization program has successfully lowered the cost/income ratio and is expected to further improve operational efficiencies, potentially leading to higher net margins as expense growth remains below revenue growth.
  
• The promotion and recent strategic focus on ETFs, potentially coupled with a fee reduction program into 2025, aim to drive increased trading volumes and investor participation in these instruments, which can enhance trading revenue from diverse investment products.
  
• Expected increases in capital expenditure, particularly towards the development of the new trading system (Watts), coupled with efforts to enhance IT infrastructures, are aimed at improving operational efficiencies and infrastructure capabilities, potentially supporting future growth in earnings.

Gielda Papierów Wartosciowych w Warszawie Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gielda Papierów Wartosciowych w Warszawie's revenue will grow by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 32.9% today to 30.1% in 3 years time.
• Analysts expect earnings to reach PLN 154.2 million (and earnings per share of PLN 3.74) by about February 2028, up from PLN 153.6 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as PLN193 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.4x on those 2028 earnings, up from 11.5x today. This future PE is greater than the current PE for the GB Capital Markets industry at 16.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.77%, as per the Simply Wall St company report.

Gielda Papierów Wartosciowych w Warszawie Future Earnings Per Share Growth

Risks

• A significant increase in employee costs and IT expenses, driven by salary raises and IT infrastructure investment, could pressure profit margins and affect net profitability.
  
• The delay and budget overshoot in the development of the Watts trading platform could result in increased capital expenditure requirements, potentially impacting net earnings and cash flow.
  
• Dependency on significant IPOs like ZabKa, which if faced by adverse market conditions or underperformance, could negatively influence turnover growth and subsequently revenue.
  
• While there was revenue growth in the financial markets, the commodity market revenue was flat, indicating a potential risk to overall revenue growth if commodity markets do not pick up.
  
• The necessity of ongoing cost optimizations and management board changes indicate operational challenges, which could risk operational efficiency and net margins if not effectively managed.

Valuation

• The analysts have a consensus price target of PLN49.612 for Gielda Papierów Wartosciowych w Warszawie 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 PLN55.4, and the most bearish reporting a price target of just PLN45.6.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be PLN512.8 million, earnings will come to PLN154.2 million, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of PLN42.2, the analyst price target of PLN49.61 is 14.9% 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.