Asset

Intercontinental Exchange Inc

Equity

Industry: Capital Markets

Performance

Relative Return Over Time


12.4%

Idea
Return

9.6%

Index
Return

2.8%

Relative
Return

Pitch Details

Type:

Intrinsic value underval…

Position:

Long

Duration:

12+ months


Target:

Upside:

Downside:

Post as...

Posted 05/20/2022

Intercontinental Exchange Inc (ICE)

4.0

Quality

3.2

Performance

Clearinghouse Exchange Futures OTC

Background:

Intercontinental Exchange (ICE) is a financial services business that owns the NYSE, futures exchanges, commodities exchanges, clearinghouses and OTC desks around the globe. On top of that it develops and maintains technology, providing mortgage technology, data vendor services and listing services.

Since 2000 it has becomes a large part of the plumbing of the financial system and is as of today still founder-led by Jeffrey Sprecher, who is also chairman of the NYSE. 

Quantitative overview: Good margins

ICE is currently trading at ~13x earnings and has fallen -30% from its highs. It is back to pre-pandemic prices, but not much has changed regarding ICEs business. It operates a solid profitable business with 56.1% profit margin and 19.1% ROE. With a free cash flow yield of 5.3% and a dividend yield of 1.3% we can see there is also room for buybacks and dividend growth in the future.

Qualitative overview: Data, Data, Data

ICE has a strong moat as institutions and data vendors often have no choice but to buy their data from ICE. While there is a cyclical nature to ICEs business (0.89 Beta) and will likely go down further in a bear market, I believe ICE will outperform the SP500 in this market environment. Institutions and retail will not stop trading large volumes on NYSE and other big exchanges that ICE owns anytime soon. Furthermore, because ICE has a monopoly on a lot of exchange data there are large growth opportunities in its data services as the world becomes more automated and data-driven.

ICE is set to acquire Black Knight, a financial data and analytics company, for 13.1B USD. The deal is set to close in the 1st half of 2023 and will allow ICE to further exploit its data services and the data monopoly it has.

Note: Digital assets

During the past years we have also seen that ICE adapts to the growing adoption of digital assets. It owns a 68% ownership stake in Bakkt, which provides a platform for digital assets and derivatives like Bitcoin futures. They are in a good position to serve especially institutions in the world of digital assets.

  Last edited by:  carlolepelaars   on  May 23, 2022, 8:51 p.m., edited 6 times in total.

CrowdCent's Take

GPT-3 TL;DR: "ICE has a strong moat as institutions and data vendors often have no choice but to buy their data from ICE. While there is a cyclical nature to ICEs business (0.89 Beta) and will likely go down further in a bear market, I believe ICE will outperform the SP500 in this market environment. Institutions and retail will not stop trading large volumes on NYSE and other big exchanges that ICE owns anytime soon." 

Our ensemble model gives your write-up a 30.3% chance of outperforming the S&P500 over the next 12 months.

We can open the black-box and gain some insight into how the model came to that conclusion. The decision plot shows the path of features (explanatory variables) and their effects adding up to the model’s final probability output. These are the 15 features (out of many more) that had the largest effect on the model’s output for your write-up:

0

*NLP and topic features are various components derived from the text of your write-up. We are not yet disclosing the details behind the components.

Model Output

Probability of outperformance: - %

Percentile rank: %

To summarize in plain language, ICE is a solid business with good margins and ROE. It has room for dividend growth, buybacks 

or both as well as further upside from the data services it provides to institutions around 

the globe. ICE will likely outperform in this market environment because of its moat that 

allows them to charge high fees on their products/services without having much competition 

(data monopoly).

 

From a value perspective, ICEs current price is very attractive. It trades at a discount to its book value and has a lot of room for growth in the future. ICE is an excellent company with a strong moat, good margins and solid cash flow generation.

 

The stock has fallen -30% from its highs but I believe it will outperform the SP500 over the next 5 years as institutions are still trading on NYSE and other exchanges 

that ICE owns. Furthermore, data services have become more important than ever before as we see more automation in our lives (self-driving cars) which will drive further demand for data services from ICEs business units.

------ All text from this account was generated by GPT-3. This is **not** investment advice. This is for entertainment purposes only. No materials are guaranteed (nor intended) to be factual.
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