Germany’s largest exchange operator increased its operating profit by almost a third in the first quarter.
(Photo: dpa)
Frankfurt The market fluctuations due to the Ukraine war and the turnaround in interest rates have given Deutsche Börse a significant increase in profits. The operating result (Ebitda) climbed in the first quarter by 32 percent to 687 million euros, as Germany’s largest stock exchange operator announced on Monday evening. Net sales climbed 24 percent to 1.06 billion euros.
The company performed better than analysts had expected on both key figures – and also exceeded its own forecasts. “The first quarter of 2022 was well above our expectations,” explained CFO Gregor Pottmeyer. In addition to the tailwind from the markets, organic growth and acquisitions also contributed to this.
“We are therefore currently expecting to exceed the forecast for the current fiscal year,” said Pottmeyer. In 2022 he now expects net sales to increase to more than EUR 3.8 billion and EBITDA to exceed EUR 2.2 billion.
In February, the group had predicted revenues of around 3.8 billion euros and an operating profit of around 2.2 billion euros. Even then, experts considered these goals to be conservative.
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“The first quarter of 2022 was overshadowed by the Russian invasion war against Ukraine,” said Deutsche Börse. Further corona waves and delivery bottlenecks have also contributed to the high level of uncertainty and volatility on the markets. “As a result, the need for trading and hedging increased in almost all asset classes, which in some cases led to significantly higher trading volumes.”
Rising interest rates are doubly positive
In addition, Deutsche Börse benefits in two ways from rising interest rates: the securities custody subsidiary Clearstream earns more from its customers’ cash deposits. In addition, due to a possible turnaround in interest rates in Europe, trading in interest-bearing securities on the Eurex derivatives exchange has picked up.
The Deutsche Börse share has therefore already gained a good eleven percent to EUR 163.95 since the beginning of the year. Many analysts expect a further increase. Experts from UBS and Deutsche Bank have each raised their target price to EUR 185 and currently recommend Deutsche Börse as the best investment among European stock exchange operators.
UBS analyst Michael Werner assumes that Deutsche Börse will increase its profits by an average of 14 percent per year from 2021 to 2024. “Increased inflation and geopolitical risks will lead to a significant increase in trading activity in 2022.”
In addition, Clearstream will benefit in particular from the turnaround in interest rates that has already been initiated in the USA. “For every 25 basis point rise in interest rates in the USA, Deutsche Börse’s profits will increase by around one percent,” calculates Werner. In the first quarter, net interest income in the custody business increased by 44 percent to EUR 18.6 million.
London Stock Exchange pulls away
In the past, analysts have regularly criticized Deutsche Börse’s comparatively high dependence on market developments. In addition, some lack a clear strategic direction, as with the London Stock Exchange (LSE), which has now primarily turned into a data provider with the takeover of Refinitiv.
A bitter side effect for the Hessians: In 2019, the LSE overtook the Deutsche Börse in terms of market capitalization and has now gained a significant lead. The British are currently valued at 53 billion euros, the German stock exchange at only 31 billion euros.
“Deutsche Boerse has underperformed its competitors because it doesn’t have a clear narrative,” Bank of America analysts complain. Good quarterly figures will not change that overnight.
It is positive, however, that at Deutsche Börse an increasing proportion of income comes from growing business areas with recurring income. These include the fund service business (IFS), the US voting rights advisor ISS, which was acquired last year, and the data and index business Qontigo.
Deutsche Börse boss Theodor Weimer wants to continue buying and has six business areas in mind in particular: Index and analytics, sustainable investments, commodities, foreign exchange, fixed-income securities and investment fund services. In addition, he is flirting with further acquisitions in the business of digital assets such as cryptocurrencies.
Big deals to reduce the gap in market capitalization to competitors like the London Stock Exchange are currently not on the agenda, Weimer said in February. “You can’t force it. And when you start to force it, it tends to go wrong.”
More: Deutsche Börse and the business that was not allowed to exist.