Exchanges Are the New Internet Stocks by Andrew Bary
Highlighted companies: Nymex Holdings Inc. (NMX), Chicago Mercantile Exchange Holdings (CME), IntercontinentalExchange Inc. (ICE), NYSE Group Inc. (NYX)
Summary: Friday's powerful Nymex Holdings Inc. (NMX) debut saw its shares surge to $133 from their $59 IPO price, giving the company a $11.5b market cap and causing seat holders to celebrate (each seat holder got 90k shares, worth $12m; seats were going for $5m last month, $1.75m in 2005, and $750k in 2001). Earnings for the first nine-months were $112m ($1.35/share) on revenues of $381m, meanings shares are going for 72x earnings. In comparison, Chicago Mercantile Exchange Holdings (CME) trades at 46x estimated 2006 earnings, and NYSE Group Inc. (NYX) at 57x. Exchanges have the highest P/E ratio for any major industry group in the stock market. Less than 10% (6.5m) Nymex shares were sold publicly. Nymex, with 63% market share, is the top energy futures exchange. Bulls are betting that with free-market incentive to maximize profits, a public Nymex will boast even greater earnings. Nymex Chairman Richard Schaeffer said Friday it would consider a merger with energy-rival IntercontinentalExchange Inc. (ICE), further spurring bulls. But, says Barron's, even if it earns $4/share in 2007, it's still rich at 30x earnings, and tangible book value is just $4/share. "When the CME went public in 2002 at just $35 a share, few recognized its potential. What a contrast from now: Wall Street is assigning an enormous valuation to Nymex as it's just out of the gate. The Internet bubble ended badly, suggesting investors ought to be cautious given the current exchange mania."
Quick comment: Press Release • Roger Nusbaum on Nymex IPO • Options Trader Likes ICE on Nymex Runup • NYMEX IPO Kicks Off Today, Ready To Sprint