Lower Volumes in Cash Equities Weigh on Performance at Euronext; FVE Maintained

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.

Trading had a difficult quarter with cash, derivatives, and fixed-income trading posting 18%, 5%, and 9% lower revenue, respectively, in the fourth quarter versus the same period a year ago. Cash equities trading contributed 21% to group revenue and the average daily traded volume declined 17%, driving most of the weak performance in the quarter. That said, Euronext’s market share of 65% highlighted that this performance was driven by lower marketwide activity levels. Revenue capture of 50 basis points was still good. Euronext guided for about 52 basis points in 2023, which is high given the historical context as well as previous commentary, which management believes is a maintainable level through the cycle.

Lower volumes in cash equities trading also weighed on clearing, which saw cash equities clearing offsetting higher bond-clearing activity.

Its smaller, but increasingly important segments, advanced data services and technology solutions showed a positive performance in the quarter, up 7% and 2% respectively. Data services was supported by good demand for its data and index offerings while technology solutions benefited from higher co-location services following the migration of Euronext’s core data center.