Euronext Earnings: Lower Volatility Slows Trading, but Diversification Strategy Shows Impact

Lower volatility in the first quarter of 2023 compared with an unusually high level of activity last year weighed on results for narrow-moat Euronext ENX. Revenue declined 6% to EUR 372.3 million while EBITDA came in 30% lower at EUR 171.8 million, driven primarily by one-off costs from the termination of the LCH SA contract (EUR 36 million). Looking past the strong showing in the year-ago period as a comparison base, performance in the quarter was, however, within expectations. We maintain our EUR 88 per-share fair value estimate and narrow moat rating.

Within cash equities trading, which contributes 19% to the top line, the average daily volume declined 26% reflecting lower volatility. The yield achieved per trade, on average, of 0.48 basis points did disappoint slightly with Euronext highlighting larger order sizes weighed negatively. The target of at least 0.52 basis points after the Borsa Italiana transition to Euronext’s proprietary Optiq trading system by year-end was, however, maintained.

Technology solutions, advanced data services, and investor services saw a stronger quarter with revenue up 19%, 7%, and 17% respectively, showcasing that the diversification strategy of Euronext towards a lower-trading and more data and subscription-based business model is starting to pay off. That said, Euronext will likely need to get active again on the merger and acquisition front to further its progress in this endeavour meaningfully after backing out of discussions over acquiring Allfunds. We welcome management’s decision to step back after it decided that Allfunds, even through it is a great asset, was too pricey. We believe Euronext has a good track record filling gaps in its offering and making strategically sound decisions and the failed Allfunds acquisition further strengthens our belief.