KBW Likes BATS' Competitive Positioning

BATS Global Markets, Inc. BATS has returned to volume growth in cash equities, with easing competition. Keefe, Bruyette & Woods’ Kyle K. Voigt initiated coverage of the company with an Outperform rating and a price target of $30.50. The analyst expressed optimism regarding BATS being able to continue gaining market share in some products, and exhibiting pricing power in others.

The company’s competitive positioning is likely to allow it to continue gaining market share in some products and exhibiting pricing power in others. This, along with strong expense management, would enable BATS to generate EPS growth “among the highest of our coverage within our forecast period,” analyst Kyle Voigt wrote.

Back To Growth

Some of the trends that resulted in a decline in volumes in US cash equities between 2009 and 2013 “have either turned or eased,” Voigt mentioned. He added that this had allowed BATS to return to volume growth, and this is likely to continue.

Market Share Gains

BATS achieved strong share gains in the US options market in 2015 and the momentum could continue to be strong going ahead. The analyst added that in forex, bank dominance of pricing and liquidity provision are expected to continue shrinking, which would benefit multi-dealer ECN venues. He added, “Longer term, we also believe Bats will have the opportunity to break into new markets post MiFID II.”

Pricing Power

“In non-transaction businesses, we think there is also room for Bats to grow its proprietary data fees by increasing pricing, as well as beginning to charge more for data in other businesses such as FX,” Voigt wrote. He believes that BATS would be in a robust financial position at yearend, allowing it to either return significant capital to shareholders or expanding inorganically.