Intercontinental Exchange (NYSE: ICE) is scheduled to report its fiscal Q4 2021 results on Thursday, February 3, 2022. We expect Intercontinental Exchange to top the revenue estimates, while earnings will likely miss the expectations. The exchange outperformed the street expectations in the last quarter, with a 28% y-o-y increase in the net revenues (total revenues minus transaction-based expenses). It was primarily driven by a significant jump in the mortgage technology revenues, followed by a 7% y-o-y growth in the exchange segment (includes trading and listing revenues). We expect the same trend to continue in the fourth quarter.
Our forecast indicates that Intercontinental Exchange’s valuation is $151 per share, which is 19% above the current market price of $127. Our interactive dashboard analysis on Intercontinental Exchange’s Earnings Preview has more details.
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(1) Revenues expected to be just above the consensus estimates
Intercontinental Exchange’s revenues grew 26% y-o-y in 2020 to $8.2 billion, translating into a 16% rise in the net revenues to $6 billion. It was driven by an 18% y-o-y increase in the non-trading revenues, followed by a 14% rise in net clearing & transaction fees.
- Clearing & transaction fees contribute approximately 40% of the net revenues (55% of the total revenues). The stream benefited from higher trading volumes in 2020, partially offset by an increase in transaction-based rebates and expenses. Further, the same trend continued in the first three quarters of 2021. Notably, the cumulative clearing & transaction fees were marginally higher than the year-ago period to $1.86 billion. We expect the fourth-quarter results to follow the same trend.
- ICE generates roughly 60% of the net revenues from non-trading income. The stream posted a significant jump of 18% y-o-y in 2020, led by a 3x jump in mortgage technology business and positive growth in other sub-segments. Further, the same pattern was observed in the first three quarters of 2021. Markedly, the cumulative nine-month non-trading revenues increased 36% y-o-y to $3.4 billion. This includes a more than 3x increase in mortgage technology revenues. We expect the fourth-quarter results to be on similar lines.
- Overall, we expect Intercontinental Exchange’s total revenues to touch $9.2 billion for FY2021.
Trefis estimates Intercontinental Exchange’s fiscal Q4 2021 net revenues to be around $1.84 billion, just above the $1.83 billion consensus estimate. We expect the mortgage technology segment to drive the third-quarter results.
Going forward, the trading volumes are likely to normalize with recovery in the economic conditions. It will likely hurt the clearing & transaction fees. That said, the non-trading revenues are likely to maintain their growth trajectory. Our dashboard on Intercontinental Exchange’s revenues offers more details on the company’s operating segments along with our forecast for FY2022.
2) EPS is likely to remain slightly below the consensus estimates
Intercontinental Exchange Q4 2021 adjusted earnings per share (EPS) is expected to be $1.30 per Trefis analysis, marginally below the consensus estimate of $1.32. The exchange’s profitability figures benefited from an increase in top-line in 2020 driven by higher trading volumes. While the same trend continued in the first three quarters of 2021, a one-time gain of $1.23 billion from divestment in Q2 further improved the adjusted net income. Notably, the cumulative nine-month adjusted net income increased 62% y-o-y to $2.5 billion. We expect the fourth-quarter results to follow the same momentum. Overall, Intercontinental Exchange’s annual GAAP EPS figure is likely to be around $5.60 for full-year 2021.
(3) Stock price estimate 19% higher than the current market price
We arrive at Intercontinental Exchange’s valuation, using an EPS estimate of around $5.60 and a P/E multiple of close to 27x in fiscal 2021. This translates into a price of $151, which is 19% above the current market price of around $127.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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|S&P 500 Return||0%||-5%||102%|
|Trefis MS Portfolio Return||0%||-9%||257%|
 Month-to-date and year-to-date as of 2/1/2022
 Cumulative total returns since the end of 2016