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Goldman Says BATS Is A Niche Growth Story Whose Valuation Leaves Little Upside

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BATS Global Markets, Inc. (BATS: BATS) is the lowest-cost provider in trading, on account of its technology and scale. Goldman Sachs’ Alexander Blostein initiated coverage of the company with a Neutral rating and a price target of $25. The analyst commented that while BATS has market share opportunities in US Options and Forex, the stock valuation “keeps us sidelined.”

The price target implies a 5 percent downside. While BATS us a “niche growth story among Exchanges,” its stock is currently trading at a 7 percent premium to Nasdaq Inc (NASDAQ: NDAQ).

Although BATS’ pricing model in trading is competitive, which should enable it to gain market share, most of the company’s growth is based on increasing prices for port fees and market data, analyst Alexander Blostein noted.

Core Growth Drivers

“We see limited growth in most of BATS’ asset classes (equities, options and FX), with competitive forces pressuring industry pricing. That said, we believe some market share opportunities for BATS still exist,” Blostein wrote.

  • Options: Although multi-listed options ADV has remained flat since 2011, BATS’ competitive pricing has resulted in market share gains. There is still room for share gains, since BATS only addresses a third of the market. If BATS is able to double its share, there would be ~4 percent EPS upside over 3-4 years.
  • FX: The analyst expects BATS’ FX fees to rise as it beings trading forwards and swaps. Introduction of market data and port fees would also boost growth.
  • Equities: BATS has had a ~21 percent market share in US equities since 2011. “Growth in ETFs is compelling, but without switching the largest ETF listings to BATS, current initiatives are unlikely to move the needle near term and we expect most growth to come from higher port fees,” the Goldman Sachs report noted.

Latest Ratings for BATS

DateFirmActionFromTo
Oct 2016CitigroupReinstatesNeutral
Oct 2016JefferiesMaintainsHold
Sep 2016Goldman SachsMaintainsNeutral

View More Analyst Ratings for BATS
View the Latest Analyst Ratings

Posted-In: Alexander Blostein Goldman SachsAnalyst Color Initiation Analyst Ratings

 

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