CME Group’s Fully Valued At $285 As Volumes Suffer

May 1st, 2012 by Trefis Team
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CME Group

CME Group‘s (NASDAQ:CME) earnings for the first quarter of 2012 were disappointing, reflecting a fall in global trading volumes, primarily attributable to the uncertainty prevalent in the markets. The company saw revenue of $775 million compared to the record figure of $832 million for the same period last year. Net income and diluted earnings per share were $267 million and $4.02, respectively. [1] CME Group is a Chicago-based publicly traded exchange and competes with NYSE Euronext (NYSE:NYX) and Nasdaq OMX (NASDAQ:NDAQ).

See Full Analysis for CME Group Here

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The company remains optimistic about the trading community as it reported all-time high revenues for CME ClearPort, the clearing platform which provides the front-end system for clearing energy and metal contracts for the company. Energy contracts account for 21% of our price estimate for CME Group. The company increased investment in the Dubai Mercantile Exchange, from 28% to 50%, to encourage trade of Middle Eastern oil contracts. It also launched co-location services in late January and expects increased revenue opportunities from this technological innovation, with positive response observed during the initial phase.

International expansion

Trade volumes from Asia and Europe saw a jump of 10% for the first quarter as the company continues to expand in Asia with on-going educational efforts and collaboration with the Bank of China. The company is also interested in buying a stake in the Tokyo Commodity Exchange (see CME Group in Talks to Acquire a Stake in Tokyo Commodity Exchange), while it has submitted an initial bid for the London Metal Exchange.

Metals trading volumes showed continued positive growth, particularly for gold, which saw a 10% increase over the quarter, and for copper, the average daily volumes grew by more than 40% compared to the first quarter of last year. Commodity and Metal Contracts account for 19% of the Trefis price estimate for CME Group.

Change in Leadership

CME Group president Phupinder Gill is set to take over the role of CEO from Craig Donohue, who earlier announced his intention to retire, at the end of the year. Strong leadership will be key to the exchange’s performance, going forward, particularly given the uncertainty prevalent across the global markets.

We have a price estimate of $285 on CME Group’s stock, about 4% above the current market price.

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Notes:
  1. CME Group’s CEO Discusses Q1 2012 Results – Earnings Call Transcript, SeekingAlpha, April 26th, 2012 [↩]