Intercontinental Exchange Inc (NYSE:ICE) Growing 24% Top Line Year on Year

September 23, 2016

ICE logo
Intercontinental Exchange Inc

Chief Investment Officer Adam Abelson of Stralem & Company says Intercontinental Exchange Inc (NYE:ICE) is an underappreciated growth story. He says this premier provider of underwriting derivatives and clearing is growing 24% top line year on year, with 80% gross margins and 15% growth in earnings.

It’s a fast-growing secular business with the added attribute that 50% of its revenue comes from owning stock exchanges from which they collect the trade data and sell the exhaust, the transaction exhaust, to hedge funds and others seeking to profit from flows, for a very hefty sum.

So half their growth comes from very fast-evolving and high-volume derivative underwriting. Again, the world is being financialized, and everybody’s got a counterparty, and that is the more attractive thesis to invest, along with this recurring revenue from data dissemination. The CME Group (NASDAQ:CME) would be a decent example of derivative underwriting, but it’s a more expensive stock than Intercontinental Exchange and doesn’t have an ancillary cash flow business.

ICE is a perfect Stralem stock, as the data business has the characteristics of an annuity-like revenue but with global aspirations, as the derivatives market expands globally, and gets more complicated and financialized. It’s a $33 billion-market-cap company with $4 billion in revenue, growing 24% top line year on year, 80% gross margins, 15% growth in earnings, 37% net margins and $1.3 billion in free cash flow growing at 30% per annum. This is an overlooked gem in terms of looking at the structure of the financial community. Intercontinental Exchange is definitely an underowned, and underappreciated name.

Adam Abelson