Euronext: Why Deutsche Bank no longer recommends buying Euronext shares

(BFM Bourse) – The German bank downgraded its recommendation on the pan-European stock market operator from “buy” to “hold” and significantly reduced its price target. According to her, the title lacks catalysts and the dynamics of its financial results remain negative.

In a market that sees red this Thursday at the start of the session, Euronext suffers even more. Shares of the pan-European stock market operator fell 3.1% in early session this Thursday around 10:20, when SBF 120 lost 1.4%.

The group suffered a downgrade from Deutsche Bank, which changed its opinion from “buy” to “hold” with a price target reduced to 69 euros from 103 euros previously.

For several years, Euronext has pursued a major external growth policy with the acquisition of the stock exchanges in Dublin, Oslo and, more recently, in Milan. In a sector where economies of scale are significant, this policy has allowed the group to strengthen in terms of size, but also to diversify its income, particularly in government bonds and post-trade activities via the acquisition of the Milan market.

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A popular diversification

Although negative, Deutsche Bank’s rating initially praises these strategic initiatives. “Euronext has done a good job developing and diversifying its activities over the past decade,” the establishment appreciates. Its income has thus tripled since its IPO in 2014.

However, cash share trading activities and related businesses such as clearing or custody and settlement of securities are still important to the group “and explain why its revenues remain volatile”, the bank emphasizes. “Due to the current weakness of the market, we expect another quarter of decline” both in terms of revenue and profit, the establishment continues, referring to the results coming for the second quarter.

Deutsche Bank also believes that the Allfunds file has “created confusion”. At the beginning of the year, Euronext made an indicative offer to buy this Spanish company specializing in the distribution of investment funds. According to Allfunds, the indicative offer amounted to 5.52 billion euros in equity value.

The market was so worried about this potential operation because of the volume, but also because of a strategic logic that was not obvious at the time at the Jefferies bank. But Euronext had quickly withdrawn this offer and thereby renounced the purchase of Allfunds.

Lack of relevant goals

“Euronext’s indicative offer for Allfunds caught many investors because of the size of the target, the lack of synergies and probably difficult relution. But it would have been the fast way to improve the “mix” of income and the growth profile of the group, in our opinion”, developer Deutsche Bank.

Beyond this specific episode, in terms of external growth, Deutsche Bank believes that Euronext’s indebtedness “remains a constraint on potential takeovers (of companies) and share buybacks, as does the lack of attractive targets”. The German bank therefore does not expect any major operation that can improve the company’s stock market profile.

In conclusion, Deutsche Bank does not see many near-term catalysts for the stock and expects negative momentum in its results. The establishment is therefore no longer on the buy side, despite the attractive valuation of the group, at 11.5 times the expected earnings per share. share in 2024.

Julien Marion – ©2023 BFM Bourse

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