Rating: Buy/12-mo. P.T.: €175.00
Euronext is our top pick with the EU Exchanges
A few weeks ago, we published a note detailing why ENX is our high-conviction top pick amongst the European exchanges. In the note, we 1) detailed the drivers of our 12-16% above-consensus 2027-28E EPS, 2) highlight the key catalysts for the shares and 3) show how the valuation remains attractive, with room for multiple expansion. Overall, we would describe the investor feedback as generally positive, but there has been some pushback as well.
Will ENX be able to win material market share with its CSD expansion?
About ⅔’s of our above-consensus 2027-28 EPS estimates are driven by our expectation for ENX to win 45-50% market share of the FR, NL & BE equity CSD business. However, a number of investors remain sceptical about the CSD expansion given there is no precedent for organic market share gains and we are the only sellside analyst to model in any material gains. Some investors have also pushed back against our TAM calculation, arguing our custody revenue estimate is inflated. Investors also want to know how long before we can assess the success of ENX’s expansion.
Will the European Cash Equities reputation improve?
Outside the CSD expansion, most of the rest of our above-consensus 2027-28E EPS estimates come from higher cash equity volume growth. We are unabashed bulls on European cash equity volume growth in the coming years…but most investors we speak with are not. They view the European cash equity markets as slow growth, competitive and difficult to forecast and thus deserving of a low valuation multiple. While we think those views will change, it may take some time.
Can ENX narrow the valuation gap with DB1?
Investors have asked whether ENX’s valuation multiple (17.7x fwd P/E) can expand from current levels, especially given DB1’s multiple (19.1x) and the fact that DB1 has traded at an avg 3x P/E premium over the past 12 years. While we expect DB1 to maintain a P/E multiple premium over ENX, we think the premium narrows. We also think that, assuming cash equity volumes grow faster than expected, investors will be willing to put a higher P/E multiple on the entire business.
Valuation: ENX is our top pick; PT: €175 (c25% upside)
ENX is our top pick among the EU exchanges. We expect the company to benefit from a number of structural tailwinds (improving European cash equity volumes and retail participation) and idiosyncratic opportunities like the CSD expansion. We argue, amongst the EU exchanges, ENX should benefit the most from the European Savings and Investment Union (SIU), even if these measures are gradual.
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