Euronext NV - Upgrade to Neutral - Investor Day Message was Positive though Targets
will be a Challenge
We raise our rating to Neutral following the company's Investor day last week where CEO Stephane
Boujnah communicated his 2019 strategic plan to the market. Overall, we think management did a good
job confidently detailing its revenue growth opportunities and incremental cost-cutting expectations.
While we don't expect the firm to fully achieve these targets, we give them credit for some of the
incremental cost cutting opportunities, driving a 5-9% upgrade to our 2016-18E EPS, a 10% increase to
our price target (to €37.50 per share) and our rating from Sell to Neutral. The growth opportunities
leverage Euronext's existing franchise and do not rely on any transformational deals.
€70mn of revenue growth opportunities & €22mn of incremental cost saves
Management highlighted 6 specific opportunities that are budgeted to bring in €70mn of incremental
annual revenues by 2019 (revenues were €519mn in 2015). They expect these initiatives will require
€35mn of annual operating expenses, leading to a target €35mn of incremental EBITDA in 2019 (EBITDA
was €284mn in 2015). Combining organic growth, the growth initiatives and an incremental €22mn of
identified cost saves, management expects EBITDA to grow at an 8% CAGR through 2019.
Friday’s Investor Day removes an overhang on the stock
After months without a clear strategy, we view the strategic plan from Euronext positively. But we think
that achieving the stated revenue, expense & profit targets will be a challenge. And even with the
announced cost-cutting opportunities, we don’t expect to see meaningful change to Euronext's EBITDA
from these initiatives until 2018. In the meantime, Euronext faces a very difficult market environment as
cash equity volumes have slowed sharply in recent months (40% of revenue base).
Valuation: We raise the rating of Euronext to Neutral with a PT of €37.50
We raise our 2016-18 EPS ests by 5-9%, our target price by 10% and our rating to Neutral. Despite the
increases, we remain 5-10% below consensus EPS in 2016-17 and see our price target implies 5%
downside potential to the current share price. While the message conveyed last Friday was positive and
led us to increase our earnings estimates, we expect this to be balanced by near-term operating
headwinds, especially as cash volume growth remains weak (hence the Neutral rating).