NYSE Euronext Opportunity on Pullback

| About: NYSE Euronext (NYX)
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NYSE Euronext (NYSE:NYX), the holding company created by the combination of NYSE Group, Inc. and Euronext N.V., was launched on April 4, 2007. NYSE Euronext (NYSE/New York and Euronext/Paris) operates the world's largest and most liquid exchange group and offers the most diverse array of financial products and services. NYSE Euronext, which brings together six cash equities exchanges in five countries and six derivatives exchanges, is a world leader for listings, trading in cash equities, equity and interest rate derivatives, bonds and the distribution of market data.

Profiting on increased market volatility, NYSE Euronext reported yesterday a record year for 2007:

  • World's Leading Marketplace in Overall IPO Proceeds.
  • New Record Volumes Across Products and Geographies.
  • Full-Year 2007 Cash Equities Volumes: + 47% in Europe and +16% in the U.S.
  • Full-Year 2007 Derivatives Volumes: +30% in Europe and +71% in the U.S.

"As the world leader in trading a range of investment products, NYSE Euronext's volume growth in Europe and the U.S. clearly demonstrates our strong value proposition to investors and issuers," said NYSE Euronext CEO, Duncan Niederauer. "In 2008, we will continue to innovate and lead the global marketplace as we further integrate our business and introduce new products and services to better serve our customers."

In 2007, NYSE Euronext expanded its global reach and entered lucrative new markets such as carbon emission trading:

  • December 2007 - NYSE Euronext became the first foreign exchange to open a representative office in China.
  • December 2007 - NYSE Euronext reached an agreement with Powernext to acquire Powernext Carbon, the company's emission permit division. Powernext is the leading spot market in Europe in this area and will provide the basis for an organized international market in CO2 emission permits and credits to be developed in association with Caisse des De'po^ts et Consignations [CDC]. The new joint enterprise will be named BlueNext and was approved by Powernext shareholders on December 21, 2007.
  • October 2007 - NYSE Euronext acquired a 1% stake in Bovespa, the owner of Brazil's largest exchange, for $90M in a bid to expand its presence in Latin America's largest economy.
  • January 2007 - NYSE Euronext acquired a 5% stake in India's National Stock Exchange, for $115M, the maximum allowed by Indian regulators.

NYSE Euronext is pending final approval to collect fees for market data:

  • October 2006 - the Securities and Exchange Commission approved the NYSE's proposed fee for distributing the real-time data that it had previously been providing to Internet companies free of charge. The approved charge was $1 per month for each unique user. If one assumes that there are 100 million unique users that access financial Web sites, such as Google Finance, then the potential revenue from this charge is $1.2 billion annually. What is at stake here is tens of billions of dollars of market capitalization that could shift from the Internet-related companies to the financial exchanges. The SEC's ruling is under review and a final ruling is expected soon.

NYSE Euronext has a new block trading joint venture which will debut in 2008:

  • October 2007 - NYSE Euronext formed a block trading joint venture with BIDS Holdings LP, whose alternative stock trading system has been taking block trading activity away from the Big Board. NYSE and BIDS said the venture -- likely to make its debut in the second half of 2008 -- would boost the quality and liquidity of block trades and would be open to all New York Stock Exchange members.

Merger synergies are also expected to realize in 2H08:

  • Both NYSE Group and Euronext believe the merger will create substantial value for all stakeholders through the realization of pre-tax annual cost and revenue synergies estimated at $375 million (€295 million), of which approximately $250 million (€195 million) are expected to come from the streamlining of the combined company's IT systems and platforms. The companies also anticipate that NYSE Euronext's market leadership position in cash equities, listings and derivatives will create opportunities to expand the combined revenue base by an estimated $100 million (€80 million) over a three-year period.

NYSE Euronext is a diverse, high-growth company with much potential. After a recent high of $90 per share, NYSE Euronext's stock price has dropped to $76.82 amidst falling U.S. Macro. In my opinion, this presents a good risk-to-reward opportunity to scale into NYSE Euronext, which found strong support at $70 last year.

Disclosure: Author has a long position in NYX