(News Bulletin 247) – 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 is suffering even more. The action of the pan-European stock market operator dropped 3.1% at the start of the session this Thursday around 10:20 a.m. when the SBF 120 lost 1.4%.

The group suffered from a deterioration on the part of Deutsche Bank, which revised its opinion from “buy” to “hold” with a price target reduced to 69 euros against 103 euros previously.

For several years, Euronext has pursued a major external growth policy, with the acquisition of the Dublin, Oslo and more recently Milan stock exchanges. In a sector where the effects of scale are significant, this policy has enabled the group to strengthen itself in terms of size but also to diversify its income, particularly in sovereign 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 of developing and diversifying its activities over the past decade,” the establishment appreciates. Its revenues have thus tripled since its IPO in 2014.

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

Deutsche Bank also considers that the Allfunds file has “caused 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 in equity value to 5.52 billion euros.

The market was then worried about this potential operation, because of the amount but also of a strategic logic which was not then obvious in the Jefferies bank at the time. But Euronext had quickly withdrawn this offer, thus renouncing to acquire Allfunds.

A lack of relevant targets

“Euronext’s indicative offer on Allfunds caught many investors off guard, given the size of the target, the lack of synergies and likely difficult relution. But it would have been the fast track to improving the ‘mix’ of income and the growth profile of the group, in our opinion”, develops Deutsche Bank.

Beyond this specific episode, Deutsche Bank considers, in terms of external growth, that Euronext’s indebtedness “remains a constraint for potential takeovers (of companies) and share buybacks, just like the lack of attractive targets”. Consequently, the German bank is not expecting any major operation that could improve the company’s stock market profile.

In conclusion, Deutsche Bank does not see many short-term catalysts for the stock and anticipates 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 earnings per share expected for 2024.