By Nandini Sukumar
Aug. 5 (Bloomberg) -- Deutsche Boerse AG said investors were reluctant to trade as Europe’s largest exchange by market value reported a 34 percent drop in profit and said it’s unsure share buybacks will resume.
Net income fell to 164.9 million euros ($237.6 million) as revenue from stock and derivatives trading decreased, the Frankfurt-based company said in a statement after markets closed late yesterday. It missed the 178 million euro median profit estimate of seven analysts surveyed by Bloomberg News.
Exchanges including NYSE Euronext, Nasdaq OMX Group Inc., London Stock Exchange Group Plc and Deutsche Boerse are contending with fewer transactions following the worst financial crisis since the Great Depression. At the same time, they face competition from so-called multilateral trading facilities, such as Chi-X Europe Ltd., Turquoise and Bats Europe, whose combined market share exceeds 25 percent.
“For Deutsche Boerse, the trading side of the business has suffered tremendously,” said Mamoun Tazi, exchange analyst at MF Global Ltd. “Typically the second half is worse than the first half. Can they turn it round? The external environment will drive that.”
Revenue fell 12 percent to 515.6 million euros for the second quarter. Costs rose 9 percent to 322.5 million euros.
“Reluctance to trade resulted in decreased sales,” Chief Executive Officer Reto Francioni said in the statement. “No decision has been made on resuming share buybacks in 2009.”
Cost Projection
Francioni reiterated his forecast that costs won’t exceed 1.28 billion euros in 2009.
LSE, Europe’s largest exchange by value of listed companies, said on July 15 that sales for the three months ended June 30 fell 8 percent to 161.9 million pounds ($274.2 million). NYSE Euronext, the world’s largest owner of stock exchanges, on July 30 reported a second-quarter loss after severance payments and a charge to end a clearing contract eroded earnings.
“We expect a decline in trading activity for the second half of the year,” Dirk Hoffmann-Becking and Richard Perrot, analysts at Sanford C. Bernstein & Co., wrote in a July 28 report. “As trading volumes are one of the strongest drivers of share price momentum, this could put pressure on exchange valuations again.”
The research firm rates Deutsche Boerse “market-perform” with a share-price estimate of 65 euros. The shares fell 2.4 percent to 56.68 euros yesterday, trimming their 2009 advance to 12 percent.
Deutsche Boerse is part-owner of Eurex, Europe’s largest futures market. It bought New York-based International Securities Exchange Holdings Inc. in 2007, and also owns Clearstream, the region’s No. 2 securities-settlement company.
Sales from the company’s Xetra stock trading unit dropped 31 percent to 63.1 million euros. Revenue from Eurex slid 14 percent to 201 million euros. Sales at Clearstream declined 5 percent to 181.1 million euros. Revenue from Market Data & Analytics rose 2 percent to 46.6 million euros.
To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net
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