During the first quarter Daniel Loeb (Trades, Portfolio) purchased 225,000 shares of Intercontinental Exchange Inc. (ICE, Financial) at an average price of $243.36 per share.
IntercontinentalExchange Group was originally founded in the year 2000 but changed its name to Intercontinental Exchange on June 2, 2014. The company operates regulated global marketplaces for trading and clearing an array of securities and derivatives contracts across major asset classes including interest rates, equities, equity derivatives, credit derivatives, and bonds. The company exchanges include futures in the U.S., U.K., continental Europe, Canada and Singapore and cash equities exchange and equity options exchanges in the U.S.
Intercontinental Exchange has a market cap of $30.32 billion, a P/E ratio of 21.81, an enterprise value of 36.62 billion, a P/B ratio of 1.98 and a dividend yield of 1.26.
According to GuruFocus Intercontinental Exchange has a 5/10 financial strength rating and a 9/10 profitability and growth rating. The company has an operating margin of 36.85% which ranks it above 72% of the 665 companies within the global financial exchanges industry.
According to GuruFocus, Intercontinental Exchange has four severe warning signs.
Intercontinental Exchange has a distressed Altman Z-Score of 0.49 which indicates that the company could file for bankruptcy within the next two years.
Intercontinental Exchange's gross margin has been in long-term decline. The average rate of decline per year is 6.5%. The company operating margin has been in a five-year decline at an average decline of 11%.
Asset growth is faster than revenue growth. If a company builds assets at 62% a year, faster than its revenue growth rate of 23.3% over the past five years, it means the company may be getting less efficient.
Below is a Peter Lynch Chart for Intercontinental Exchange.
Loeb may have purchased a stake for the following reasons.
Intercontinental Exchange is expanding its business operations. On Dec. 11, 2015 the company acquired Trayport. Trayport is a software company that licenses its technology to serve exchanges, OTC brokers and traders to facilitate electronic and hybrid trade execution primarily in the energy markets. On Dec. 14, 2015 the company completed the acquisition of Interactive Data. Interactive Data is a leading provider of financial market data, analytics and related trading solutions. Both of these acquisitions show that Intercontinental Exchange is successfully expanding its operations while strengthening the core of the company.
Intercontinental Exchange has reported excellent financial results over the previous 10 years. The company has reported revenue growth (26%), EBITDA growth (21.50%), Free Cash Flow growth (23.90%) and book value growth (36%) over the previous 10 years.
Conclusion
Intercontinental Exchange has 16 years of experience within its industry. It has been able to successfully expand and it has reported excellent financial results over the previous 10 years. All of these factors could have influenced Loeb to purchase a stake.
Loeb grew up in Santa Monica, California, where he attended Palisades Charter High School in Los Angeles. After graduation Loeb went onto Columbia University where he received his Bachelor of Arts in science. Upon graduation, Loeb spent the next 11 years working for various firms including Warburg Pincus, a private equity firm, from 1984 to 1987. He then landed a job working as director of corporate development at Island Records, a record label where he focused on securing debt financing.
After his time at Island Records Loeb seized an opportunity to work as a risk arbitrage analyst at Lafer Equity Investors. He was senior vice president in the distressed debt department at Jefferies LLC from 1991 to 1994. During this time Loeb increased his knowledge and experience about bankruptcy analysis, trading bank loans and selling distressed securities. In 1995, Loeb decided he had enough experience and decided to take a risk, founding Third Point Management LLC with $3.3 million from friends and family. Since Loeb founded Third Point LLC, the investment firm has grown to owning 37 stocks with a total value of $10.86 billion.
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