CSD Expansion And Market Maker Launch Will Support A Stronger Long Term Outlook

Catalysts

About Bolsas y Mercados Argentinos

Bolsas y Mercados Argentinos operates the main exchange and central securities depository for Argentina, providing trading, custody and related post trade services.

What are the underlying business or industry changes driving this perspective?

• Expansion of assets under custody across government securities, corporate bonds, CEDEARs and SME instruments is increasing the relevance of the CSD segment. This can support higher custody and ancillary service revenue and a larger share of group earnings over time.
• Growing domestic appetite for CEDEARs and international custody services on both outbound and inbound flows is deepening the link between local investors and global markets. This can sustain volume based fee income and support revenue diversification.
• The planned launch of a local market maker program and the first ETF tracking the S&P Merval Index is aimed at improving liquidity in local equities. This can lift equity trading volumes, support higher exchange revenue and improve operating leverage.
• Integration of the Quantex RFQ platform with Tradeweb to serve foreign investors in Argentine fixed income creates a single access point for international flows. This can support higher fixed income trading volumes, fee revenue and potentially stronger net margins if incremental costs remain contained.
• Tax efficiency measures, including relocation of operations to jurisdictions with lower Ingresos Brutos rates and a broader shift in cost footprint, are reducing tax burdens. This can support net margins and help translate operating performance into higher net income.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Bolsas y Mercados Argentinos's revenue will grow by 38.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 59.4% today to 64.3% in 3 years time.
• Analysts expect earnings to reach ARS 511.6 billion (and earnings per share of ARS 65.54) by about August 2029, up from ARS 179.4 billion today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 10.4x on those 2029 earnings, down from 12.4x today. This future PE is lower than the current PE for the AR Capital Markets industry at 12.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 21.5%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The Central Securities Depository segment is currently benefiting from sizeable government securities issuance and related assets under custody, which are tied to Argentina specific monetary and fiscal conditions. If the National Treasury or Central Bank shift funding patterns or reduce reliance on these instruments, growth in assets under custody could slow and weigh on CSD revenue and earnings.
• Trading activity in local equities has been flat for several quarters apart from the election driven spike, while CEDEARs absorb much of investor attention. If the planned local market maker program and the first local ETF tracking the S&P Merval Index fail to lift on exchange volumes, the core exchange business could remain subdued, which would limit revenue growth and operating leverage.
• On exchange repo already experienced a reduction after leverage limits were introduced for local brokers, and management only expects more subdued growth ahead. If regulators tighten leverage or other market rules again, it could cap repo activity and related fees and put pressure on revenue and net margins.
• Expenses recently grew faster than inflation, helped by one off consultancy, bonuses and higher headcount linked to the BYMA clearing launch. If these costs do not normalize as expected or if further projects require similar spending, operating efficiency could erode and weigh on earnings and net margins.
• The business model is exposed to Argentina specific macro factors such as interest rates, FX controls, devaluation and tax regimes. If interest rates remain low, FX controls persist for longer than expected or tax efficiency gains stall, other operating income and the benefit from tax measures could be smaller than hoped, which would limit net income growth and pressure valuation multiples.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ARS390.0 for Bolsas y Mercados Argentinos based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be ARS795.8 billion, earnings will come to ARS511.6 billion, and it would be trading on a PE ratio of 10.4x, assuming you use a discount rate of 21.5%.
• Given the current share price of ARS291.0, the analyst price target of ARS390.0 is 25.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.