SINGAPORE EXCHANGE LIMITED (SGX:S68)
Singapore Exchange - Enlarging Its OTC FX Product Suite
- SGX (SGX:S68) to acquire MaxxTrader for US$125m (valued at ~8.3x CY20 revenue).
- We see synergies from FX pricing and liquidity competencies by connecting MaxxTrader’s sell-side client suite to BidFX’s buy-side clients.
- Reiterate ADD. We think that this acquisition is complementary to SGX’s goal of expanding its FICC segment to account for ~25% of revenue in 3-4 years.
Acquisition of MaxxTrader to be EPS accretive in year one
- SGX announced that it will acquire MaxxTrader, a single source and direct-to-market FX trading platform, to strengthen the FX segment as one of its core pillars of growth. It aims to expand its FICC segment to account for ~25% of revenue in 3-4 years, from ~19% currently.
- SGX will acquire 100% of MaxxTrader from FlexTrade Systems (a global leader in multi-asset execution and order management systems) for a cash consideration of ~US$125m (~S$170m), with an additional performance-based earn-out of up to ~US$35m (~S$48m) to be paid in CY22/23 if predetermined targets for CY21/22 are achieved.
- The acquisition will be funded via external borrowings and is expected to be completed by Dec 21. SGX guided for its debt-to-EBITDA ratio to remain at ~1x post-acquisition.
- The acquisition is valued at ~8.3x CY20 revenue, and SGX estimates it to be EPS accretive from Year 1 (excluding one-off transaction costs).
- MaxxTrader recorded a revenue CAGR of ~14-15% over CY15-20, with stronger growth expected ahead. The platform recorded ADV of US$17bn over Jan-Jun 21; SGX guided for this to grow at over 25% CAGR over the medium term (~3- 4 years).
- This is in line with SGX’s outlined criteria for M&As. Its general guiding principles include 3-year pro-forma revenue CAGR of over 10%, cash EPS accretive within 3 years, and for key synergies to be fully realised within 3 years of acquisition.
- MaxxTrader’s revenue model will be volume-based, supplemented by licensing fees.
MaxxTrader – provides FX pricing and risk solutions for sell-side
- MaxxTrader is a leading provider of FX pricing and risk solutions for sell-side institutions, including banks, broker-dealers, and is a multi-dealer platform for hedge funds. The firm has a global client and dealer franchise with over 100 global banks, regional banks, broker-dealers and hedge funds on its platform.
Synergies likely from connecting MaxxTrader and BidFX
- Having acquired BidFX to access the OTC FX market in 2020, SGX seeks to build up its multi-dealer platform with the acquisition of MaxxTrader to introduce FX pricing and risk engines to its product suite. In essence, there are significant synergies to be gained from providing a workflow solution by extending the price discovery and liquidity aggregation process of the OTC FX sell-side (BidFX clients) to the buy-side (MaxxTrader clients). At the same time, SGX is in the process of setting up a primary OTC FX Electronic Communication Network by end-21 to connect all institutional firms to trade OTC FX based on best available bid-ask quotes.
- Ultimately, having MaxxTrader on board will serve to accelerate SGX’s vision to build Asia’s largest one-stop venue for international FX participants.
- See
- SGX currently trades at ~25x FY21F P/E, which is 1 standard deviation above 10-year mean. The bourse will release its FY22F full-year earnings on 5 Aug 2021. We expect the share price to trade sideways in the near term.
- Reiterate ADD rating and target price of S$11.61 for SGX, pegged to 25x FY22F P/E.
- Heightened market volatility or accretive acquisitions are potential re-rating catalysts.
- A slower-than-expected take-up of new products is a key downside risk.
Andrea CHOONG
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-07-23
SGX Stock
Analyst Report
11.610
SAME
11.610
