European Exchanges - May 2016 Cash Equity Volumes: A Difficult Month
* Cash Equity Volumes worsened for the European exchanges in May
Cash equity volume trends across the European exchanges we cover worsened in May. YoY declines to
Average Daily volumes (ADVs) in May ranged from -25 to -30% for DB1, Euronext, LSE & Borsa Italiana
(part of the LSE group) while declines were more severe at BME (48%). For most of the exchanges, May
2016 marked the weakest ADV for cash equities since August 2014. With the seasonally slow summer
months ahead of us, 2016 is shaping up to be a challenging year for the exchanges, especially those that
have a high reliance on cash equity volumes like Euronext and BME.
* Our forecast for 9% decline in 2016 cash equity volumes may be too optimistic
For the group, we forecast a 9% decline to cash equity volumes in 2016. However, with YTD cash equity
volumes down 10-27% for the exchanges we cover, our outlook for the cash equity space may be overly
optimistic. With 35-40% of revenues generated from cash equity trading volumes at Euronext and BME,
we expect further consensus earnings downgrades for these two firms. We are currently 6-8% below
consensus EPS estimates for BME over 2016 and 2017 and 6-10% below for Euronext.
* Valuation: DB1 a Buy, ENXT a Neutral and BME a Sell
We continue to rate DB1 a Buy as they have the smallest exposure to cash equity volumes, accounting
for just 8% of 2015 revenues. Despite Neutral-rated Euronext's high exposure to cash equity volumes,
we prefer it to BME (rated Sell) as we expect cost-cutting opportunities will result in better share price
and earnings performance.