Intercontinental Exchange’s £395m ($604m) takeover of Climate Exchange will give the group a further grip on the booming European energy markets, a senior London-based analyst has said.
“If you have the cash and you can use the equity, then it’s a good time to buy", the analyst told FOW. "The Climate Exchange’s market cap is $350m, so it’s still trading on a substantial premium – its trading on 44-times current earnings. [But] it’s moving in the right direction, at least.”
This morning, the US-based exchange group said it had agreed terms for a takeover of Climate Exchange plc, the London-listed parent company of the Chicago Climate Exchange, the Chicago Futures Climate Exchange, European Climate exchange and part of the Montréal Climate Exchange.
“From a valuation point of view, it’s expensive,” the analyst continued, “but that’s not why you buy something like this. The energy market is a booming market – what ICE is doing is buying an option to compete with Eurex and the other power exchanges.”
In March, volume reached 55,400 at the CCFE, while trading at the European Climate Exchange reached an average daily volume of 20,700, down 16% year on year.
Matthew Whittell, group chief financial officer, told FOi that he did not know at this stage whether ECX would be fully assimilated into ICE’s structure or whether it would operate with some autonomy.
He conceded that Climate Exchange had “had a reasonably rough time… in the prelude to Copenhagen”. The group’s share price has fallen from a high of 992p in July last year to a low of 450p in March of this year, before jumping 55% to a high of 746p on today’s news.
But Whittell maintained that “customers in Europe will see no change whatsoever” once the deal had been completed. He said that the way Richard Sandor had started the company and built it to the size it has become showed “real entrepreneurialism at its best”.
Green competition
The exchange analyst agreed that ICE had a successful history of well-timed moves into strategic markets, saying the move would create welcome synergies for the group: “There is another positive”, he added. “If you expect carbon derivatives to move towards exchange trading and clearing, there is a synergy, because ICE now owns both.”
Last week, CME’s Green Exchange venture, a legacy of its takeover from Nymex, applied for designated contract market status. At present, CME Group’s environmental products trade on Nymex.
The bourse hopes to trade derivatives based on EU Allowances and Carbon Emission Reduction certificates, as well as North American products such as NOx, SO2, Regional Greenhouse Gas Initiative certificates and Climate Action Reduction certificates.
“There is room for another exchange” in this market, said Andrew Ager, head of emissions trading at Bache Commodities in London, last week, adding that the European Climate Exchange “really needs a competitor”.
Tom Osborn +44 207 779 8361 tosborn@fow.com
Siân Williams +44 207 779 8370 swilliams@fow.com