Shares of the NYSE Group (NYSE:NYX) have soared close to 15% since they hit a short-term low on March 16th. There are several catalysts behind this move:
First, exchange shares were hit harder than most during the broader market decline in late February. Fundamentally, however, the short-term market dip is unlikely to have a major impact on revenues at NYSE. In fact, trading volume on the exchange actually surged to near-record levels during that decline -- and higher volumes spell more fees for NYX.
It also helps that the company is now completing its planned takeover of Europe's Euronext. The tender offer for Euronext ended in late March, and NYX announced it currently controls more than 92% of Euronext shares. Over the next three years, NYX believes it can extract some 293 million euros ($385 million) from the deal in the form of cost savings and other synergies. In addition, the deal will also facilitate trans-Atlantic trading in stocks and options. Many see the deal as a major positive, and a potential growth avenue for NYX.
Finally, the company also got approval from the SEC for its new bond trading platform. For years, the bond market has been mainly an over the counter trading system -- to buy a bond, you had to contact an individual dealer or market maker at a bank or brokerage house and negotiate the price. Commissions were high, and the market has traditionally been the province of institutional traders, not retail investors.
The new NYX platform will facilitate electronic trading in many corporate bonds. The system will also transmit real-time bond price quotes -- the pricing of bonds should become more transparent. With several retail brokers now offering bond trading at low commissions, this could well be another growing market for NYX.
And while currently the stock may seem pricey (with a P/E near 70), a forward P/E of only 27 and a 36% growth rate next year seemingly justify its valuation.
Disclaimer: Paul Tracy owns shares of NYX.
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