Intercontinental Exchange: not only Wall Street and IPOs, the bet is on mortgages

In data presentations, whether quarterly or annual, there is always one table that is more significant than the others. This is also the case for Intercontinental Exchange (Ice), the global group that - among other things - controls the New York Stock Exchange (Nyse). Well: in the slides referring to the numbers for the first quarter of 2024, there is one that summarises the dynamics of earnings per share from 2006 to 2023. Of course! Such representations also have - considering the effects of buy backs with the possible cancellation of securities - a marketing function. Yet, since the data must be true, they offer a snapshot of earnings development over time. Thus: back in 2006 the adjusted EPS (earnings per share) was $0.48. Ten years later (2015) the indicator reached $2.42. In the last financial year, after it exceeded USD 5 for the first time in 2021, earnings per share stood at USD 5.62. The upward trend as a whole implies a weighted average annual growth of 16%. In short: the trend describes the increase in net profitability per share. An expansion that, moreover, characterised the last quarter itself. More generally, Ice saw - in absolute terms - both revenues and profitability increase between the beginning of January and the end of March. The bottom line was $2.29 billion (+20% compared to the same period in 2023). Diluted adjusted EPS, for its part, was $1.48 ($1.41 a year earlier).

However, the devil is in the details. Ice - which, according to analysts, presented 'robust' results - with respect to margins has taken a few steps backwards. Sure: the numbers remain good. However, the adjusted operating margin in the first quarter came in at 59%. That is: lower than a year earlier (61%). The slowdown is a consequence of the growth in adjusted operating expenses. These rose from 740 million (in Q1 2023) to the more recent 930 million. The trend, on closer inspection, is not of today. The accounting item was worth USD 2.9 billion in 2022. In 2023, it rose to 3.26 billion.

Faced with such a dynamic, the saver - of course - turns up his nose. Disappointment, however - reading the reports of the conference calls on annual and quarterly figures - is not on the group's radar.First and foremost Ice - pointing out that it is ahead of schedule with respect to the synergies associated with the Black Night acquisition - indicates that it has lowered its adjusted operating expense estimates for the full year 2024. From the range of USD 3.81-3.86 billion to a forecast of USD 3.79-3.82 billion. Moreover, the same disbursements for the first quarter were at the lower end of the indicated range (930-990 million). In short: the company - among other things - emphasises prudent management in expenditure. Not only that. Generally speaking, the group points out that, on the one hand, the higher outlays are the effect of investments in the modernisation of technology platforms and data centres (essential to sustain growth); and that, on the other, they are also the consequence of the expansion for M&A that has always characterised Ice.

Yes, acquisitions. The group - as part of its business diversification strategy - has carried out several shopping sprees. Starting from the energy sector, it made, for example, the purchase in 2008 of Creditex (intermediary on Cds). Then, in 2013, he made Nyse Euronext his own and, in 2015, he entered the world of fixed income with M&A of Idc. More recently, finally, Ice made its way into US mortgages. Thus, in 2018, it completed the acquisition of Mers. Subsequently, it did the M&A of Ellie Mae (2020) and Black Night (2023).

Beyond the individual operations, the company's desire to expand - and more articulate - its business through extraordinary transactions is clear. "A diversification," explains Anna Kunkl, senior partner of Be consulting, "that is vital to ensure growth". Not least because 'globally there is an overall contraction in trading volumes and associated margins'. Consequently, the M&A route is crucial. This, of course, requires the ability to manage new realities and avoid, for example, overleveraging. In general, experts recognise Ice's ability to quickly integrate the acquired company. Having said that, however, one cannot fail to notice that the adjusted Debt/Ebitda ratio has risen over time. True! This is the effect (also) of company growth. Furthermore, the company points out how, after M&A operations, the leverage returns. Thus, for example, after the Ellie Mae shopping spree (2020), the indicator - which reached 4.25 times - dropped to three at 31.12.2021 (in advance of the initial plan, which envisaged adjusted Debt to ebitda at 3.25 by the end of 2022). Nevertheless, the do-it-yourselfer has to keep an eye on leverage (about 3.9 times Ebitda as of 31/3/2024) against the many extraordinary transactions. All the more so after the recent Black Knight (Black Night) shopping spree.