Pershing Square Inc. on Intercontinental Exchange, Inc.
Thesis
Pershing Square believes Intercontinental Exchange represents an undervalued financial infrastructure franchise with attractive long-term growth prospects across exchanges, market data, fixed income, and mortgage technology. Record futures and options volumes and accelerating growth in ICE's data businesses support the company's underlying earnings trajectory. The fund expects structural growth in institutional hedging demand due to geopolitical uncertainty, the reorganization of global energy supply chains, and persistent interest rate volatility. ICE's planned $5.7 billion acquisition of MarketAxess provides an opportunity to expand its fixed-income trading capabilities while improving the acquired company's growth and profitability through operational synergies. Pershing Square also sees ICE's partnership with Trade[XYZ] as an opportunity to participate in regulated perpetual futures without undermining its institutional derivatives franchise. Trading at approximately 17 times earnings, ICE is considered significantly undervalued relative to its competitive position and potential for mid-teens long-term EPS growth.
“ICE trades at 17 times earnings, a highly discounted valuation for a high-quality franchise”
Key risks
- Recent record futures and options trading volumes may prove unsustainable, reducing the growth outlook for the exchanges business.
- Perpetual futures could compete with traditional derivatives products, potentially challenging ICE's established exchange franchises.
- Higher interest rates could continue depressing demand and profitability within the Mortgage Technology business.
- The MarketAxess acquisition may fail to deliver the anticipated synergies or successfully reverse the acquired business's recent weak revenue growth and declining margins.