Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cme-group-inc" target="_blank" data-smartkarma-citation="entities:12353:1" rel="noopener">Cme Group Inc (CME US)</a> has approached <a href="https://www.smartkarma.com/entities/cboe-global-markets-inc" target="_blank" data-smartkarma-citation="entities:20189:1" rel="noopener">Cboe Global Markets (CBOE US)</a> with a view to making an all paper acquisition, according to the FT</li>
<li>If confirmed, a CME-CBOE tie up would, in our view, indicate that CME management’s rationale would be to “bulk up” on data revenues; also, the tie-up would benefit from the enlarged scale of two derivative exchanges, with broadly complimentary product offerings</li>
<li>Furthermore, we would expect longer term synergy benefits from reduced opex and capex</li>
<li>The reported CBOE acquisition price tag of USD16bn is a 20% premium to its current market value, which implies a take-out 2022E consensus PE multiple of 26x, which is at a slight discount to CME itself (26.9x)</li>
<li>We believe that the spotlight is now on CBOE, and its very attractive business mix with its premium EBITDA margin; we believe that the merger would be positive CBOE shareholders, and broadly neutral for CME shareholders</li>
<li>Risks to our positive view on CBOE based on a potential CME-CBOE merger include regulatory and anti-trust opposition to the merger, on the basis of monopolistic concerns; another key risk in the event of a merger, would be the failure to extract the expected cost savings and synergies outlined by management</li>
</ul>



Cme Group Inc (CME US) has approached Cboe Global Markets (CBOE US) with a view to making an all paper acquisition, according to the FT
If confirmed, a CME-CBOE tie up would, in our view, indicate that CME management’s rationale would be to “bulk up” on data revenues; also, the tie-up would benefit from the enlarged scale of two derivative exchanges, with broadly complimentary product offerings
Furthermore, we would expect longer term synergy benefits from reduced opex and capex
The reported CBOE acquisition price tag of USD16bn is a 20% premium to its current market value, which implies a take-out 2022E consensus PE multiple of 26x, which is at a slight discount to CME itself (26.9x)
We believe that the spotlight is now on CBOE, and its very attractive business mix with its premium EBITDA margin; we believe that the merger would be positive CBOE shareholders, and broadly neutral for CME shareholders
Risks to our positive view on CBOE based on a potential CME-CBOE merger include regulatory and anti-trust opposition to the merger, on the basis of monopolistic concerns; another key risk in the event of a merger, would be the failure to extract the expected cost savings and synergies outlined by management


Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

Hong Kong Exchanges and Clearing / Equity Bottom-Up

Hong Kong Exchanges and Clearing (388 HK)

*Challenging Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 2Q21 weak earnings of HKD 2.8 bn, declining HKD 1.1 bn (27.9%) linked quarter. Results were even worse when we exclude investment income (declined HKD 73 mn or 15.7% linked quarter) – decreasing HKD 997 mn (29.5%) to HKD 2.4 bn. Results were highlighted by HKEX’ marginally negative operating jaws, as recurring revenue declined HKD 1.9 bn (29.7%) while operating expenses increased HKD 8 mn (0.7%) over the period. HKEX’ 2Q21 witnessed weak revenues almost across the board; and*Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experiences, HKEX needs to contend with the government’s examination of a stamp duty increase, mainland China’s contemplation of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center; and the Sino-ification of HKEX trading as tension mount between the US and mainland China.

*Challenging Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 2Q21 weak earnings of HKD 2.8 bn, declining HKD 1.1 bn (27.9%) linked quarter. Results were even worse when we exclude investment income (declined HKD 73 mn or 15.7% linked quarter) – decreasing HKD 997 mn (29.5%) to HKD 2.4 bn. Results were highlighted by HKEX’ marginally negative operating jaws, as recurring revenue declined HKD 1.9 bn (29.7%) while operating expenses increased HKD 8 mn (0.7%) over the period. HKEX’ 2Q21 witnessed weak revenues almost across the board; and*Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experiences, HKEX needs to contend with the government’s examination of a stamp duty increase, mainland China’s contemplation of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center; and the Sino-ification of HKEX trading as tension mount between the US and mainland China.

Hong Kong Exchanges & Clearing – Glitter Is Gone

*Limited Impact: Singapore Exchange (SGX.SG) [SGX] announced that it was acquiring MaxxTrader from FlexTrade Systems for USD 125mn plus. This is SGX's third acquisition after BidFX and Scientific Beta in 2020. This deal is expected to provide SGX with the ability to leverage this franchise to set up an ECN FX marketplace as targeted under its medium-term plan; and*Distractions:As SGX needs to contend with a greater than expected impact from Hong Hong Exchanges &amp; Clearing (388.HK) competitive pressures for derivatives volumes, and the earlier-than-expected launch of HKEX's MSCI China A index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth.

*Limited Impact: Singapore Exchange (SGX.SG) [SGX] announced that it was acquiring MaxxTrader from FlexTrade Systems for USD 125mn plus. This is SGX's third acquisition after BidFX and Scientific Beta in 2020. This deal is expected to provide SGX with the ability to leverage this franchise to set up an ECN FX marketplace as targeted under its medium-term plan; and*Distractions:As SGX needs to contend with a greater than expected impact from Hong Hong Exchanges &amp; Clearing (388.HK) competitive pressures for derivatives volumes, and the earlier-than-expected launch of HKEX's MSCI China A index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth.

Singapore Exchange - Another Deal, Another Distraction

*Exemption Could Add To IPO Pipeline: Mainland China is planning to exempt companies seeking to list on Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] from first seeking approval from the Cyberspace Administration of China (CAC). The idea behind the exemption is mainland Chinese Hong Kong IPOs were already subject to higher scrutiny and approval from the China Securities Regulatory Commission (CSRC); and *Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experience, HKEX needs to contend with the government’s examination of a stamp duty increase and mainland China’s contemplation of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center.

*Exemption Could Add To IPO Pipeline: Mainland China is planning to exempt companies seeking to list on Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] from first seeking approval from the Cyberspace Administration of China (CAC). The idea behind the exemption is mainland Chinese Hong Kong IPOs were already subject to higher scrutiny and approval from the China Securities Regulatory Commission (CSRC); and *Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experience, HKEX needs to contend with the government’s examination of a stamp duty increase and mainland China’s contemplation of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center. 

Hong Kong Exchanges & Clearing – Take It When You Can Get It

*Analysts’ Day Reveals More Scrambling: Singapore Exchange (SGX.SG) [SGX] held an Analysts’ Day on June 11, 2021, where Acquisitions; Equities; FICC; and ESG were discussed. We were left with the impression that management is scrambling to offset revenue losses which appear to have been taking place in nearly every aspect of its business; and*This Kind Of Hope Is Not A Strategy: Hoping for near-term revenue strength from higher equity market volatility which helps SGX's derivatives business volumes, and a further delay in HKEX's launch of MSCI China A index futures are not sustainable long-term strategies. SGX needs a long-term plan, which should include the government recognizing that this national champion might actually have to be sold.

*Analysts’ Day Reveals More Scrambling: Singapore Exchange (SGX.SG) [SGX] held an Analysts’ Day on June 11, 2021, where Acquisitions; Equities; FICC; and ESG were discussed. We were left with the impression that management is scrambling to offset revenue losses which appear to have been taking place in nearly every aspect of its business; and*This Kind Of Hope Is Not A Strategy: Hoping for near-term revenue strength from higher equity market volatility which helps SGX's derivatives business volumes, and a further delay in HKEX's launch of MSCI China A index futures are not sustainable long-term strategies. SGX needs a long-term plan, which should include the government recognizing that this national champion might actually have to be sold.

United States

CME Group Inc. operates a derivatives exchange that trades futures contracts and options on futures, interest rates, stock indexes, foreign exchange and commodities.  The Exchange brings together buyers and sellers of derivatives products on its trading floors, electronic trading platform, and through privately negotiated transactions that it clears.

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CME Group (CME US)

CME & CBOE: Merger Musings

A potential merger of CME-CBOE would, based on the FT article terms, be positive for CBOE shareholders in the main; the attractions are...

Victor Galliano

Hong Kong Exchanges & Clearing – Glitter Is Gone

HONG KONG EXCHANGES: HKEX reported 2Q21 weak earnings, declining 27.9%. Results were highlighted by HKEX’ marginally negative operating jaws. HKEX’...

Thomas J. Monaco

Singapore Exchange - Another Deal, Another Distraction

SINGAPORE EXCHANGE: SGX announced that it was acquiring MaxxTrader for USD 125mn plus, its third acquisition since 2020. Numerous bolt-on deals...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – Take It When You Can Get It

HONG HONG EXCHANGES & CLEARING: Mainland China is planning to exempt listings on HKEX from seeking CAC approval, as Mainland IPOs are subject to...

Thomas J. Monaco

Singapore Exchange – Peripatetic

SINGAPORE EXCHANGE: SGX held an Analysts’ Day which discussed various aspects of its business. Management appears to be scrambling to offset...

Thomas J. Monaco

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