IntercontinentalExchange Earnings Preview: Trade Volumes In Focus

+2.03%
Upside
137
Market
140
Trefis
ICE: Intercontinental Exchange logo
ICE
Intercontinental Exchange

Global exchange operator IntercontinentalExchange Group (NYSE:ICE) is scheduled to announce its Q1 earnings on May 5. The company reported a 75% year-on-year growth in net revenues to $1.1 billion in the fourth quarter, with much of the growth coming from the NYSE acquisition in November 2013. After acquiring all of NYSE-Euronext’s businesses, ICE sold off its European equity trading business Euronext NV in June 2014.

The company witnessed a 100% rise in European derivatives trading volumes to a total of nearly 160 million contracts traded during the December quarter. On the other hand, consolidated futures and options trading volumes in the U.S. in Q4 were flat over the year-ago period at 97 million contracts. Consequently, ICE witnessed a 70% growth in transaction-based revenues to $811 million in Q4. Additionally, the exchange operator witnessed a 74% year-on-year increase in data services revenues to $174 million in the December quarter. Similarly, ICE’s full year revenues rose by almost 150% y-o-y to $4.2 billion – with predominantly inorganic growth, while transaction and clearing services revenues were up by over 100% y-o-y to $3 billion for the full year. [1]

We have a $222 price estimate for IntercontinentalExchange Group, which is in line with the current market price.

Relevant Articles
  1. Up 24% Since The Start Of 2023, What To Expect From Intercontinental Exchange Stock After Q4 Results?
  2. Up 7% In The Last One Month, Where Is Intercontinental Exchange Stock Headed?
  3. Where Is Intercontinental Exchange Stock Headed?
  4. Intercontinental Exchange Stock Is Trading Below Its Fair Value
  5. Intercontinental Exchange Stock To Edge Past the Expectations In Q4
  6. Forecast Of The Day: Intercontinental Exchange Data Services Revenue

See Our Full Analysis For IntercontinentalExchange Group

Impact Of The Euronext Spinoff

At the beginning of 2013, the combined operating margins of NYSE Euronext and ICE were estimated to be around 42%. During the year, the company realized $95 million in synergies, bringing its margins up to around 45%. Comparatively, Euronext’s operating margins stood at around 41% last year, and the company initially expected its full year margins to be around 49% through 2014. [2] ICE reported an adjusted operating margin of about 55% in its Q4 earnings report at the end of the December quarter. The company posted healthier margins on account of higher-than-expected top line growth driven by high trading activity during the quarter. The move to spin off Euronext should continue to help ICE improve its margins in the coming quarters, since equity trading is typically a lower-margin business. The Euronext IPO helped the company generate about $1.5 billion in cash, of which it returned $1 billion to shareholders through stock repurchases. Additionally, the company used about $500 million in strategic investments which included the SuperDerivatives acquisition.

Trading Volume Trends Across Europe, U.S.

Derivative trading volumes for oil products on ICE’s platform have been high since the beginning of the year owing to the speculation among traders related to volatility in oil prices. As a result, the average daily volume (ADV) for Brent was up by 43% y-o-y to 894,000 trades through Q1’15. Similarly, Gasoil futures and options were up by 17% on a y-o-y basis since the start of the year to 270,000 trades per day. As a result, the combined ADV across all oil derivatives stood at over 1.5 million contracts traded per day, a 40% rise over the comparable prior year period. [3]

On the other hand, natural gas derivatives witnessed a 10% y-o-y volume decline through the March quarter with an ADV of 1.1 million contracts per day. Volumes could continue to be low during a tough period for natural gas product trading owing to macroeconomic uncertainty and geopolitical conditions in Europe. Similarly, there was a moderate 5% y-o-y fall in combined trading volumes for agricultural commodities and metals, which stood at about 372,000 trades per day through Q1.

The total number of interest rate derivatives traded on ICE’s platforms through the March quarter were down by about 27% y-o-y to 1.5 million contracts per day, mainly due to tough year-over-year comparisons. In early 2014, trading volumes of short-term interest rate derivatives were as high as 1.9 million contracts traded per day, which has declined to about 1.3 million contracts per day in Q1’15. On the other hand, medium and long-term interest rate derivative trading rose by about 10% y-o-y to 203,000 trades per day in the March quarter. [4] Management mentioned that with QE announced in Europe, the company could witness low volumes for interest rate products in the short term. However, it is likely to impact only Euro-denominated trading. Management further mentioned that Pound-denominated products actually witnessed growth in the December quarter, which it has subsequently sustained through the March quarter.

Trading of equity derivatives was also lackluster during the quarter with an ADV of 721,000 trades compared to 885,000 trades per day in the comparable year-ago period. Volatility in currencies and speculation around the exchange rates led foreign exchange (FX) derivative trading to rise during the quarter. The ADV for FX derivatives for the quarter stood at 59,000 trades, driven by a surge in March volumes (83,000 trades per day). Comparatively, ICE witnessed only about 27,000 trades per day in year-ago quarter in a weak environment for FX trading.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. ICE Q4 2014 Results, ICE Press Release, January 2015 []
  2. ICE Earnings Call Presentation Q1 2014, ICE Investor Relations, May 2014 []
  3. ICE Europe Historic Monthly Volumes, ICE Group Investor Relations, April 2015 []
  4. ICE U.S. Futures Historic Monthly Volumes, ICE Group Investor Relations, April 2015 []