Virtu Financial Slapped With Underperform At Credit Suisse: Here's Why

In a report published Friday, Credit Suisse analyst Ashley N. Serrao initiated coverage of Virtu Financial Inc VIRT with an Underperform rating and a price target of $21. Analyst Ashley N Serrao wrote, "…all electronification is not created equal - specifically, transforming the mode of communication from voice to electronic Request for Quote (RFQ) doesn't create opportunities for Virtu." "We are not constructive on treasuries or swap execution facilities (SEFs) as new business opportunities for Virtu, absent a willingness to commit more capital and take risk. We believe the franchise will make greater inroads in more commoditized products such as equities and FX," Serrao added. In the report Credit Suisse noted that the various regulations that aim to curb market making activities at larger banks actually tend to restrict future growth opportunities, such as penetrating India and China, and swap execution facilities. The company's current stock valuation is high in view of the risks associated with its business. Virtu continues to face fierce competition from other non-bank market makers who have already made inroads into the SEF and treasury arenas. "One specialty ETF market maker has easily outgrown Virtu's entire equity business (60% of Virtu's revs in 2012 to 117% in 2014) with most of the growth coming from the next frontier for ETFs –Europe. We also expect banks to invest in electronic solutions to leverage customer relationships and internalize natural flow," the report stated.