Financial Technologies – A buy even at 65 PE
The caption says it all. Financial technologies (C.M.P Rs 1252) are a unique concept where investors buying a 65 PE (trailing) stock would still make money.
Financial technologies is another great buy in the buy what you see category stock . Peter Lynch would have been proud to own it the first time he would have looked at the trading terminal.
Financial technology has many products working in the financial trading markets. . It has products like ODIN, Inet.net, iWin, FXDirect, etc. These cover all stages of trading – pre trade, trade and post trade. These products cater to Exchanges, Brokers, AMCs,, Depositories, Custodians, Banks, etc. The products finds applications in different market segments (Equities, Derivatives, Commodities and Forex) Financial Technologies would continue to be a major beneficiary of the growth momentum in domestic securities market.
Financial technologies has set up two commodity exchanges Multi Commodity Exchange (MCX) and Dubai Gold and Commodity Exchange (DGCX). Over the next few years the commodities market is expected to experience exponential growth and Financial Technologies should be a huge beneficiary.
The total value of India’s agri produce is equal to US $ 85 billion. Assuming a multiple of 10 times to the commodities futures market the total size should be to the order of US $ 850 billion. It stands at less then US $b 2 billion today.
The growth will come both from increased volume per participant as well as a growth in the number of participants.
Since the initial costs are already incurred the company will experience huge operating leverage. A major part of incremental revenue shall flow directly into the bottom-line.
Globally the commodities markets are 70 times the spot market. In India it is just equal to 5 – 7 times the spot market. This anomaly will be corrected and the commodities futures markets shall have to grow by 10 to 12 times. Moreover the process can be expedited through better regulations, introduction of options trading, permitting institutional investors to enter into trading etc. Even otherwise market forces prevail and just as telecom grew the commodities futures market would have to grow in sync with global norms. While the direction is clear but the timing could be debatable.
The MCX conducts trades of over Rs 5000 crores each day. It has entered into strategic alliances with global exchanges like Tokyo Commodities Exchange, Baltic Exchange, DGCX, LME, Chicago Climate Exchange, etc.
International comparison: The Chicago Mercantile exchange trades at a market cap of US $ 15 billion
The Chicago Mercantile exchange |
C.M.P |
Us $ 448 |
Market cap |
US $ 15.59 |
EPS (trailing) |
Us $10.13 |
PE |
44.25 |
Market Cap to sales |
14 times |
I am not sure as to what the revenues of MCX could be so I have not computed it in my calculations but indiainfoline estimates that MCX would have earned a revenue of Us $ 273 million in 2005.If we put international valuations to the 64% of MCX held by Financial technologies the per share value of exceeds the current market price That means that the .other business of the company shall be available free.
Fidelity paid US $ 50 million to acquire a 9% stake in MCX. This puts the total value of the commodity exchange at Rs 2555 crores. The share of financial technologies works out to Rs 372.00 per share. This value shall be further enhanced due to two strong features:
Ø Unlisted companies are always valued at discount to listed ones.
Ø Significant time has elapses since the Fidelity placements and valuation of a growth business rises each quarter.
Dubai Gold and Commodities Exchange: DGCX is a joint venture between Financial technologies, MCX and Dubai Metal and
Commodity Center. Between Tokyo and London there was no commodity exchange and the DGCX shall attempt to fill in that gap.
Geographically it has an ideal location in being situated almost mid way between Tokyo which closes at 9.00 am IST and Baltic London. which opens at 2.00 pm IST DGCX is in a Free Trade Zone with a 50-year tax holiday.
National Spot Exchange for Agri Produce (NSEAP): In association with MCX and NAFED Financial Technologies has set up the NSEAP, a national level electronic spot market for agriculture products. With the advent of organized retailing this Agri business initiative of Financial technologies shall receive a further boast.
The company also has a majority interest in National Bulk Handling Corporation — an India wide warehousing and supply-chain company that provides that provides end-to-end solutions for handling agricultural commodities.
Recommendation: At a market cap of just over US $ 1.1 billion Financial Technologies is a multibagger in the making and investors take positions and keep buying at each decline.Once MCX is listed then depending on valuations investors shoud switch over to the same since the driving force in financial technologies is the MCX echange.
Source: Media internet reports
Edited by basant - 29/Aug/2006 at 11:49am