Company Reports

Euronext reported a good fourth-quarter 2023. After weaker performances in its trading business through most of 2023, the European exchange benefited from an exceptionally strong performance in fixed-income trading, driven by higher interest rates and market volatility. Fixed-income trading grew revenue in the quarter by 39% on a like-for-like basis. Power trading also contributed positively, with revenue up 31% on a like-for-like basis, driven primarily by higher volumes traded in the quarter. Other positive performances in the quarter were good activity in clearing and higher assets under custody driving custody and settlement revenue. In sum, revenue and income grew 8% to EUR 374 million in the quarter from a year ago. Underlying operating expenses were flat as Euronext achieved good cost-controls, offsetting inflationary pressures. We maintain our EUR 88 per-share fair value estimate and narrow moat rating.

Euronext is a pure European exchange group with a strong presence in cash equities trading, operating the largest collective liquidity pool across the region. Leveraging this position, Euronext offers proprietary indexes and index derivatives. Its indexes are not as ubiquitous as those of its larger competitors on a global scale, but they are a crucial input for regional money managers. Euronext has also increased its footprint in post-trade capabilities with the acquisition of Borsa Italiana, allowing the group to decouple itself over the next several years from relying on peers for crucial trading value chain operations.

Narrow-moat Euronext reported adjusted EBITDA of EUR 146.5 million, up 7% on a like-for-like basis as the exchange group saw good traction in nontrading-related segments. We maintain our EUR 88 per-share fair value estimate.

We maintain our EUR 88 per-share fair value estimate after Euronext posted a quarter within our expectations, with revenue down 1.8% to EUR 368 million and adjusted EBITDA down 2.5% to EUR 216 million. Much like the first quarter of this year, nontrading-related revenue performed well, underlining management’s strategy to further diversify income streams. However, lower volatility after increased levels of activity through last year did prove challenging for the group in its trading activities again this quarter, as was to be expected. Our narrow moat rating is unchanged.

Lower volatility in the first quarter of 2023 compared with an unusually high level of activity last year weighed on results for narrow-moat Euronext. Revenue declined 6% to EUR 372.3 million while EBITDA came in 30% lower at EUR 171.8 million, driven primarily by one-off costs from the termination of the LCH SA contract (EUR 36 million). Looking past the strong showing in the year-ago period as a comparison base, performance in the quarter was, however, within expectations. We maintain our EUR 88 per-share fair value estimate and narrow moat rating.

Narrow-moat Euronext walked away from its EUR 5.5 billion offer for the fund distribution platform Allfunds. According to a press release by Allfunds on the matter, Allfunds' board deemed the offer price as inadequate and discussions with Euronext were halted shortly thereafter. We had previously highlighted that Euronext's offer did look opportunistic, but applaud Euronext's discipline in not getting pulled into a bidding war. Our Exemplary Morningstar Capital Allocation Rating and our EUR 88 per-share fair value estimate remain unchanged.

Narrow-moat Euronext confirmed media reports that it has made a conditional offer to acquire fund distribution platform Allfunds. The European exchange group offered EUR 8.75 for each outstanding share of Allfunds, valuing its equity at EUR 5.5 billion. The offer comprises a EUR 5.69 cash component with the remainder paid in shares, enticing shareholders with a 19% premium above the Feb. 21 closing price. The transaction is conditional on approval by the largest shareholders (BNP Paribas with a 12.1% stake and private equity consortium LHC3 with 34.3%). We maintain our EUR 88 fair value estimate.

We maintain our EUR 88 per-share fair value estimate for Euronext after the exchange group reported fourth-quarter results just shy of our estimates. For the full year, earnings per share of EUR 4.10 were slightly short of our expected EUR 4.17 per share, as Euronext’s trading and clearing operations did not live up to our assumptions. Management provided guidance on its underlying operating costs excluding depreciation and amortization of around EUR 630 million for 2023 and lifted its total synergies from the Borsa Italiana Group by EUR 15 million to EUR 115 million. Our narrow moat rating is unchanged.

We are launching coverage on Euronext with a fair value estimate of EUR 88 per share and Medium Uncertainty Rating. We believe the European exchange group has a narrow moat and stable moat trend, while we rate management’s capital allocation decisions as exemplary.

Euronext is a pure European exchange group with a strong presence in cash equities trading, operating the largest collective liquidity pool across the region. Leveraging this position, Euronext offers proprietary indexes and index derivatives. Its indexes are not as ubiquitous as those of its larger competitors on a global scale, but they are a crucial input for regional money managers. Euronext has also increased its footprint in post-trade capabilities with the acquisition of Borsa Italiana, allowing the group to decouple itself over the next several years from relying on peers for crucial trading value chain operations.