Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Thematic (Sector/Industry)

<ul>
<li>Global exchanges are adapting to a more price pressured environment in trading fees, including the growth of off-exchange trading</li>
<li>The most forward looking exchanges are actively diversifying their revenue base away from trading and transaction fees, and they are focusing on post-trade services, as well as monetising their access to “big data” and data flows</li>
<li>Select exchanges have accelerated their revenue diversification strategies through M&amp;A; two high profile examples are <a href="https://www.smartkarma.com/entities/intercontinental-exchange-inc" target="_blank" data-smartkarma-citation="entities:10221:1" rel="noopener">Intercontinental Exchange (ICE US)</a> acquiring Ellie Mae and <a href="https://www.smartkarma.com/entities/london-stock-exchange-group" target="_blank" data-smartkarma-citation="entities:22034:1" rel="noopener">London Stock Exchange (LSE LN)</a> acquiring Refinitiv which, in part, reflects the attraction of the “big data” opportunity</li>
<li>The recent merger rumours within the exchanges sector between <a href="https://www.smartkarma.com/entities/cboe-global-markets-inc" target="_blank" data-smartkarma-citation="entities:20189:1" rel="noopener">Cboe Global Markets (CBOE US)</a> &amp; <a href="https://www.smartkarma.com/entities/cme-group-inc" target="_blank" data-smartkarma-citation="entities:12353:1" rel="noopener">Cme Group Inc (CME US)</a> – even though this merger did not materialise – reflect the potential for cost savings and synergies from exchange mergers</li>
<li>In emerging markets, the shift away from trading revenues is also apparent, although the pace of change seems more measured due to regulatory constraints</li>
<li>Among developed market exchanges, we believe that ICE is the “poster child” on revenue transformation, and is not overly expensive on valuations, with <a href="https://www.smartkarma.com/entities/deutsche-boerse-ag" target="_blank" data-smartkarma-citation="entities:21604:1" rel="noopener">Deutsche Boerse Ag (DB1 GR)</a> being the value pick and we also find CBOE to be attractive; we believe that LSEG is still a “show me” story on Refinitiv integration, even if valuations are undemanding</li>
<li>In emerging markets, we believe that out-of-favour <a href="https://www.smartkarma.com/entities/b3-sa-brasil-bolsa-balcao" target="_blank" data-smartkarma-citation="entities:24580:1" rel="noopener">B3 Sa - Brasil Bolsa Balcao (B3SA3 BZ)</a> shares have potential to reverse the trend and re-rate on attractive valuations, with smaller cap <a href="https://www.smartkarma.com/entities/bolsa-mexicana-de-valores-sab" target="_blank" data-smartkarma-citation="entities:24766:1" rel="noopener">Bolsa Mexicana De Valores Sab (BOLSAA MM)</a> attractive on both its broad revenue mix and valuations; we are bearish on <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> shares, with the market overly positive on the exchange’s prospects, in our view</li>
<li>
<a href="https://www.smartkarma.com/entities/singapore-exchange-ltd" target="_blank" data-smartkarma-citation="entities:1047:1" rel="noopener">SGX (SGX SP)</a> is one to watch; management has more to do to diversify the revenue base, yet its valuations are undemanding and competition concerns may be overdone</li>
<li>We include the listed crypto exchange <a href="https://www.smartkarma.com/entities/coinbase-global-inc" target="_blank" data-smartkarma-citation="entities:32227:1" rel="noopener">Coinbase (COIN US)</a> in this exchanges report for the first time; with its business model very geared towards trading and transaction fees, we are cautious on Coinbase given the very high volatility in both volumes and prices inherent in the world of crypto trading, as well as the regulatory hurdles</li>
<li>Risks to our positive views on B3, BolsaMex, ICE, CBOE and Deutsche Boerse include worse than expected post-trade and data and IT revenue generation as well as a more hostile regulatory climate; risks to our bearish views on HKEX and Coinbase are better than expected revenue and EBITDA growth</li>
</ul>


Global exchanges are adapting to a more price pressured environment in trading fees, including the growth of off-exchange trading
The most forward looking exchanges are actively diversifying their revenue base away from trading and transaction fees, and they are focusing on post-trade services, as well as monetising their access to “big data” and data flows
Select exchanges have accelerated their revenue diversification strategies through M&amp;A; two high profile examples are Intercontinental Exchange (ICE US) acquiring Ellie Mae and London Stock Exchange (LSE LN) acquiring Refinitiv which, in part, reflects the attraction of the “big data” opportunity
The recent merger rumours within the exchanges sector between Cboe Global Markets (CBOE US) &amp; Cme Group Inc (CME US) – even though this merger did not materialise – reflect the potential for cost savings and synergies from exchange mergers
In emerging markets, the shift away from trading revenues is also apparent, although the pace of change seems more measured due to regulatory constraints
Among developed market exchanges, we believe that ICE is the “poster child” on revenue transformation, and is not overly expensive on valuations, with Deutsche Boerse Ag (DB1 GR) being the value pick and we also find CBOE to be attractive; we believe that LSEG is still a “show me” story on Refinitiv integration, even if valuations are undemanding
In emerging markets, we believe that out-of-favour B3 Sa - Brasil Bolsa Balcao (B3SA3 BZ) shares have potential to reverse the trend and re-rate on attractive valuations, with smaller cap Bolsa Mexicana De Valores Sab (BOLSAA MM) attractive on both its broad revenue mix and valuations; we are bearish on HKEX (388 HK) shares, with the market overly positive on the exchange’s prospects, in our view

SGX (SGX SP) is one to watch; management has more to do to diversify the revenue base, yet its valuations are undemanding and competition concerns may be overdone
We include the listed crypto exchange Coinbase (COIN US) in this exchanges report for the first time; with its business model very geared towards trading and transaction fees, we are cautious on Coinbase given the very high volatility in both volumes and prices inherent in the world of crypto trading, as well as the regulatory hurdles
Risks to our positive views on B3, BolsaMex, ICE, CBOE and Deutsche Boerse include worse than expected post-trade and data and IT revenue generation as well as a more hostile regulatory climate; risks to our bearish views on HKEX and Coinbase are better than expected revenue and EBITDA growth


Exchanges – More than Just Trading Places

Alpha-Centric ESG Research

Kyle Rudden

Whether we call this a SPAC bubble that has burst or a SPAC bull-run "correcting" itself, one thing is clear – the global SPAC market is cooling off. Cooling off... but not dead. SPACs are likely to play a much larger role in global equity markets than they have historically, and Asia is poised to play a larger role within that larger global equity markets role. We are already seeing evidence of this.Specifically, the recent increase in SPAC-related interest and activity in Asia by: 1) SPAC sponsors (growing number of Asia-based sponsors and foreign SPACs seeking Asia-based targets), 2) Asia's unicorns (several have announced huge SPAC deals), and 3) Asia's financial exchanges (which are increasingly enabling local SPAC listings, such as Singapore Exchange's new framework).It is still too soon to call anything an Asia SPAC "boom," but the growth is tangible and immediate enough for optimism. It motivated me to finally write about a topic I have been meaning to cover – i.e., ESG issues related to the SPAC vehicle itself, as well as to how SPACs are applied in supporting sustainability-related tech startups (e.g., electric vehicles, batteries/storage, clean energy).

Whether we call this a SPAC bubble that has burst or a SPAC bull-run "correcting" itself, one thing is clear – the global SPAC market is cooling off. Cooling off... but not dead. SPACs are likely to play a much larger role in global equity markets than they have historically, and Asia is poised to play a larger role within that larger global equity markets role. We are already seeing evidence of this.Specifically, the recent increase in SPAC-related interest and activity in Asia by: 1) SPAC sponsors (growing number of Asia-based sponsors and foreign SPACs seeking Asia-based targets), 2) Asia's unicorns (several have announced huge SPAC deals), and 3) Asia's financial exchanges (which are increasingly enabling local SPAC listings, such as Singapore Exchange's new framework).It is still too soon to call anything an Asia SPAC "boom," but the growth is tangible and immediate enough for optimism. It motivated me to finally write about a topic I have been meaning to cover – i.e., ESG issues related to the SPAC vehicle itself, as well as to how SPACs are applied in supporting sustainability-related tech startups (e.g., electric vehicles, batteries/storage, clean energy).

SPACs and ESG: Issues Related to the SPAC Vehicle Itself and Sustainability Use Cases

Recent mainstreaming of sustainability and ESG-minded investing has spawned a superabundance of "green" investment products. Today's carte of mainstay ESG products – namely exchange-traded funds (ETFs) and mutual funds – is so saturated that most new products are just more of the same; perhaps with a minor new spin on an old ESG theme (low carbon, no carbon, efficient carbon).... solutions without problems in need of solving.Once in a while, something special comes along. Not just a new paint job on an old vehicle but an entirely new ESG asset class and product category. New tools for the ESG investor's toolbox. Such as <a href="https://www.smartkarma.com/entities/singapore-exchange-ltd" target="_blank" data-smartkarma-citation="entities:1047:1" rel="noopener">Singapore Exchange (SGX SP)</a> ESG futures, which enable ESG-tilted exposure in REITs via <a href="https://www.smartkarma.com/entities/sgx-nikkei-esg-reit-index-futures" target="_blank" data-smartkarma-citation="entities:33480:1" rel="noopener">SGX Nikkei ESG-REIT Index Futures (JRTA INDEX)</a>, and other ESG-related hedging and arbitrage.... solutions to real problems for "green" finance.One in a blue moon, something extraordinarily special comes along. Not just a new ESG asset class and product category, but a potential game-changer that disrupts and transforms sustainable/ESG investing and finance. In many ways, for many stakeholders. A remedy for the most universal and agonizing pain points for sustainable finance, and possibly the key to global sustainability.Nothing extraordinarily special has come along yet.Still too much uncertainty for grandiose adjectives.But last week's announcement from the New York Stock Exchange (NYSE) and Intrinsic Exchange Group (IEG) – regarding their new asset class called "Natural Asset Companies" (NACs) – portends that kind of blue-moon game-changer. NACs are still under development, with existential details still undetermined. But the potential impact of NACs is epic, for a rare trifecta of reasons:<ol>
<li>
Product/Market Fit: NACs make a lot of sense, and from what we know so far could be among the best (if not the best) product/market fits ever for new ESG asset class/product launches.</li>
<li>
Addressable Market: The potential market for NACs is huge due to the magnitude of natural capital, and broad relevance of NACs. It is a market potential measured in trillions of dollars.</li>
<li>
Perfect Partnership: NYSE/IEG is the partnership most likely to succeed at something such as  this; complementary skills sets, and with a well-developed product right out of the gate.</li>
</ol>

Recent mainstreaming of sustainability and ESG-minded investing has spawned a superabundance of "green" investment products. Today's carte of mainstay ESG products – namely exchange-traded funds (ETFs) and mutual funds – is so saturated that most new products are just more of the same; perhaps with a minor new spin on an old ESG theme (low carbon, no carbon, efficient carbon).... solutions without problems in need of solving.Once in a while, something special comes along. Not just a new paint job on an old vehicle but an entirely new ESG asset class and product category. New tools for the ESG investor's toolbox. Such as Singapore Exchange (SGX SP) ESG futures, which enable ESG-tilted exposure in REITs via SGX Nikkei ESG-REIT Index Futures (JRTA INDEX), and other ESG-related hedging and arbitrage.... solutions to real problems for "green" finance.One in a blue moon, something extraordinarily special comes along. Not just a new ESG asset class and product category, but a potential game-changer that disrupts and transforms sustainable/ESG investing and finance. In many ways, for many stakeholders. A remedy for the most universal and agonizing pain points for sustainable finance, and possibly the key to global sustainability.Nothing extraordinarily special has come along yet.Still too much uncertainty for grandiose adjectives.But last week's announcement from the New York Stock Exchange (NYSE) and Intrinsic Exchange Group (IEG) – regarding their new asset class called "Natural Asset Companies" (NACs) – portends that kind of blue-moon game-changer. NACs are still under development, with existential details still undetermined. But the potential impact of NACs is epic, for a rare trifecta of reasons:

Product/Market Fit: NACs make a lot of sense, and from what we know so far could be among the best (if not the best) product/market fits ever for new ESG asset class/product launches.

Addressable Market: The potential market for NACs is huge due to the magnitude of natural capital, and broad relevance of NACs. It is a market potential measured in trillions of dollars.

Perfect Partnership: NYSE/IEG is the partnership most likely to succeed at something such as  this; complementary skills sets, and with a well-developed product right out of the gate.


Natural Asset Companies (NACs): New ESG Asset Class Aims to Transform Sustainable Capital Markets

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*New Product Line: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] has published a consultation paper seeking feedback on offering Special Purpose Acquisition Companies (SPAC) by October 31, 2021; and    *Not A Panacea: We do not believe that SPACs are the panacea which will resolve HKEX’s weakened revenue stream. Further, the US Securities and Exchange Commission (SEC) issued accounting guidance for SPACs, calling warrant issuance by SPACs liabilities rather than equity instruments. This could disrupt new SPAC filings, and certainly throw a wrench into HKEX’s SPAC plans.

*New Product Line: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] has published a consultation paper seeking feedback on offering Special Purpose Acquisition Companies (SPAC) by October 31, 2021; and    *Not A Panacea: We do not believe that SPACs are the panacea which will resolve HKEX’s weakened revenue stream. Further, the US Securities and Exchange Commission (SEC) issued accounting guidance for SPACs, calling warrant issuance by SPACs liabilities rather than equity instruments. This could disrupt new SPAC filings, and certainly throw a wrench into HKEX’s SPAC plans.

Hong Kong Exchanges & Clearing – SPAC Time

*Creation of New Beijing Exchange: The establishment of a new Beijing Exchange will support small-to-medium sized enterprises (SME) exchange listings. The Beijing Exchange will only manage the highest-quality SMEs, with investment being made very accessible to small retail investors (minimum CNY 1 mn in liquid assets) – virtually ensuring success of the new Beijing Exchange; and
*HKEx Continues To Be Hollowed Out: Coupled with mainland China’s establishment of a new stock exchange to attract overseas-listed firms, mainland China continues to reinforce the notion that Shanghai will become the pre-eminent global financial center in Asia - limiting Hong Kong Exchanges &amp; Clearing’s (388.HK) [HKEx] ability to attract up and coming mainland Chinese IPOs over longer-term. In other words, if HKEx's mainland China story goes away so should HKEX’s exorbitant valuation.

*Creation of New Beijing Exchange: The establishment of a new Beijing Exchange will support small-to-medium sized enterprises (SME) exchange listings. The Beijing Exchange will only manage the highest-quality SMEs, with investment being made very accessible to small retail investors (minimum CNY 1 mn in liquid assets) – virtually ensuring success of the new Beijing Exchange; and
*HKEx Continues To Be Hollowed Out: Coupled with mainland China’s establishment of a new stock exchange to attract overseas-listed firms, mainland China continues to reinforce the notion that Shanghai will become the pre-eminent global financial center in Asia - limiting Hong Kong Exchanges &amp; Clearing’s (388.HK) [HKEx] ability to attract up and coming mainland Chinese IPOs over longer-term. In other words, if HKEx's mainland China story goes away so should HKEX’s exorbitant valuation.

Hong Kong Exchanges & Clearing – China Plays Long Game With HKEx

Singapore

Singapore Exchange Limited owns and operates Singapore's Securities and derivatives exchange and their related clearing houses.  The Company also provides ancillary securities processing and information technology services to participants in the financial sector.

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SGX (SGX SP)

Exchanges – More than Just Trading Places

We assess exchanges based on revenue mix ex-trading; the poster child is ICE, other attractive stocks are Deutsche Borse, CBOE, B3 & BolsaMex, with...

Victor Galliano

Natural Asset Companies (NACs): New ESG Asset Class Aims to Transform Sustainable Capital Markets

NYSE and Intrinsic Exchange Group announced a new asset class called "Natural Asset Companies" (NACs). Mission-critical hurdles remain, but NACs...

Kyle Rudden

Hong Kong Exchanges & Clearing – SPAC Time

HKEX: HKEX is seeking feedback on offering SPACs. We do not believe that SPACs are the panacea which will resolve HKEX’s weakened revenue stream.

Thomas J. Monaco

Hong Kong Exchanges & Clearing – China Plays Long Game With HKEx

HKEX: The establishment of a new Beijing Exchange will support SME exchange listings. Coupled with establishment of a new exchange, HKEx continues...

Thomas J. Monaco

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Exchanges – More than Just Trading Places

We assess exchanges based on revenue mix ex-trading; the poster child is ICE, other attractive stocks are Deutsche Borse, CBOE, B3 & BolsaMex, with...

Victor Galliano

SPACs and ESG: Issues Related to the SPAC Vehicle Itself and Sustainability Use Cases

In Asia there is an undeniable upswell in SPAC activity – by SPAC sponsors, crown-jewel unicorns, and bourses like SGX. This covers ESG issues...

Kyle Rudden

Natural Asset Companies (NACs): New ESG Asset Class Aims to Transform Sustainable Capital Markets

NYSE and Intrinsic Exchange Group announced a new asset class called "Natural Asset Companies" (NACs). Mission-critical hurdles remain, but NACs...

Kyle Rudden

Hong Kong Exchanges & Clearing – SPAC Time

HKEX: HKEX is seeking feedback on offering SPACs. We do not believe that SPACs are the panacea which will resolve HKEX’s weakened revenue stream.

Thomas J. Monaco

Hong Kong Exchanges & Clearing – China Plays Long Game With HKEx

HKEX: The establishment of a new Beijing Exchange will support SME exchange listings. Coupled with establishment of a new exchange, HKEx continues...

Thomas J. Monaco