Intercontinental Exchange (ICE), one of the largest global stock and derivative exchange operators, issued solid financials for the third quarter of 2016. Total net revenues soared 32.1% y-o-y to $1.08 bn and came in in line with consensus estimate. Trading and clearing segment revenues slid 4% to $483 mn, while data services revenues more than doubled to USD 489 mn thanks to a $261 mn contribution from the recent acquisitions of Interactive Data and Trayport. Listings revenues edged up 5% to a record $106 mn. Operating income improved 7.7% to $474 mn, and operating margin was 44%. Adjusted earnings per share rose 10.3% to $3.21 although missed analysts’ average projection by a penny.
ICE's ability to keep its costs in check is enabling the company to generate healthy cash flow. In the first nine months of 2016, cash flows from operations were $1.5 bn, up 69% y-o-y. Capital expenditures in this period were $112 mn, and capitalized software development costs totaled $88 mn. The company also announced a quarterly dividend of 85 cents per share, which offers annualized dividend yield of 1.3%.
My outlook for ICE remains optimistic. The company’s Q3 performance represents its eighth consecutive quarter of double-digit earnings growth driven by disciplined expense management, strategic acquisitions and consistent focus on organic growth initiatives. Timely achievement of cost synergies and global expansion strategy are expected to contribute positively to earnings. Alongside, strong operating cash flows and improved financial leverage will also help maintain a healthy balance sheet.
I believe that the recent decline of ICE’s shares was excessive and expect a rebound of the stock. Medium-term target is $300.