Morningstar | Fairly Good 1Q for Intercontinental Exchange; Shares Fairly Valued
Wide-moat Intercontinental Exchange put up a fairly good first quarter of 2019, and we don’t anticipate making a material change to our $75 fair value estimate. The company reported net income of $484 million, or $0.85 per diluted share, on $1.27 billion of revenue net of transaction-based expenses. Net revenue increased 4% from the previous year with 60% of the revenue increase coming from the data business segment, which the company has been building up. Sequentially, net revenue declined 3% from weaker trading results in energy and financial products. The decrease in trading revenue was industrywide, with peer CME Group also having sequential declines in energy trading revenue and a decrease in financial product revenue from lower equity market volatility in the first quarter.Intercontinental Exchange recently announced an acquisition to further build its electronic mortgage services business. The company is acquiring Simplifile for $335 million. Simplifile assists with the recording of residential mortgage transactions, and it should work well with Mortgage Electronic Registrations Systems, which Intercontinental Exchange acquired in late 2018. There's interesting optionality with this space, as the U.S. mortgage process remains a fairly paper-intensive process. While these acquisitions could be viewed as noncore, they can also be viewed as further expansion into fixed income via mortgages and asset-backed securities. Over the past several years, Intercontinental Exchange has expanded fixed-income-related products and services to about one fourth of revenue, with major contributions from the rate derivatives of the NYSE Euronext acquisition and fixed-income data from the Interactive Data acquisition.
Intercontinental Exchange is a holding company. Through its subsidiaries, the company is a global operator of regulated exchanges, clearing houses and listings venues, and a provider of data services for commodity, financial, fixed income and equity markets. The company operates regulated marketplaces for listing, trading and clearing an array of derivatives contracts and securities across primary asset classes, including metals, equities, bonds and currencies, and also provides mortgage and technology services. In addition, the company provides data services to support the trading, investment, risk management and connectivity needs of customers. The company has two segments: Trading and Clearing and Data and Listings.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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