German stock exchange group Deutsche Börse is better positioned to weather the recent slump in trading volumes than its fellow European stock exchanges, according to research by Credit Suisse’s exchanges analyst, Rupak Ghose.
Although Ghose has cut his earnings and revenue forecasts for Deutsche Börse, the London Stock Exchange (LSE) and Spanish stock exchange Bolsas Y Mercados Espanoles (BME) because of the slump in trading volumes and values, he rates Deutsche Börse as ‘outperform’, while the other two exchanges are rated ‘underperform’.
“We continue to believe that although the capital markets environment is extremely weak, Deutsche Börse will significantly outperform the broader exchange sector in terms of its 2009 revenue declines,” Ghose wrote in the research report. “We believe that Deutsche Börse is extremely attractive given its valuation and free cash flow generation. Clearly it is highly exposed to the state of capital markets but we believe that it remains relatively well diversified.”
According to the research, volumes have fallen across all asset classes traded by Deutsche Börse in January. Cash equities traded on Xetra, the exchange’s electronic trading platform, are down 70% year-on-year, Eurex derivatives volumes have fallen 30%, index volumes have slumped 21% and fixed income contracts are down 50%. As a result, Credit Suisse has cut the exchange’s earnings-per-share estimate by 12.1% to EUR4.7 for the year ending December 2009, and reduced its revenue estimate to -11% from -3%.
The bank cut BME’s revenue forecast for the year ending December 2009 by 7% and now expects a 23.2% year-on-year decrease compared with its previous estimate of a 17.3% decline. It has reduced its 2009 earnings-per-share forecast for BME by 10% to EUR1.34.
For the LSE, Credit Suisse now expects a 16% year-on-year decline in revenues for the year ending March 2010, compared with 11% previously, and is reducing its earnings forecast for the same period by 7%.