War Volatility And ETF Adoption Will Reshape Long-Term Exchange Earnings Profile

Catalysts

About Tel-Aviv Stock Exchange

Tel-Aviv Stock Exchange operates the central securities exchange, clearinghouses and related data and connectivity services for Israel's capital markets.

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

• The shift to a Monday through Friday trading week is increasing access for global participants, which is already linked with higher foreign investor activity and higher average daily volumes. This supports trading and clearing commission revenue and the scalability of earnings.
• Growing use of local ETFs and mutual funds in both equities and bonds, together with higher assets under management, is supporting custodian fees and clearinghouse revenues. This can feed through to higher net margins as volumes scale over a largely fixed cost base.
• Rising dual listings, a larger domestic equity market cap and more IPOs on Tel-Aviv Stock Exchange are increasing listing fees, annual levies and data licensing income. This directly contributes to revenue and supports earnings resilience across cycles.
• The expansion of futures contracts on key indices and the addition of more market makers are deepening the derivatives market. This can increase trading volumes, diversify revenue streams and improve overall profitability through higher operating leverage.
• Reforms that tie index inclusion in corporate bond indices to liquidity criteria are encouraging larger, more actively traded bond issues on Tel-Aviv Stock Exchange. This is likely to support bond trading and clearing revenues and provide a supportive backdrop for future earnings.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Tel-Aviv Stock Exchange's revenue will grow by 15.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 36.2% today to 41.9% in 3 years time.
• Analysts expect earnings to reach ₪400.0 million (and earnings per share of ₪4.3) by about July 2029, up from ₪222.7 million 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 46.2x on those 2029 earnings, down from 51.8x today. This future PE is greater than the current PE for the IL Capital Markets industry at 10.5x.
• Analysts expect the number of shares outstanding to grow by 1.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.44%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Q1 2026 results for Tel-Aviv Stock Exchange are heavily influenced by very high trading volatility linked to regional war and global tensions. If trading volumes and volatility revert toward calmer conditions, the spike in revenues from trading and clearing commissions of ₪71.1 million and related clearinghouse services could prove cyclical rather than structural, which would weigh on revenue and earnings.
• The sharp rise in local equity and bond ETF activity and the public shifting cash into local indices may reverse if investor risk appetite changes or if foreign markets become relatively more attractive again. This could reduce custodian fee income, lower assets under management on which Tel-Aviv Stock Exchange charges fees and pressure net margins.
• The very strong Q1 2026 equity market performance, with Tel-Aviv Stock Exchange equity market cap at ₪2.3b and record ADV of ₪5.6 billion, was supported by war related volatility and substantial ETF inflows. If market sentiment weakens or valuations compress, equity issuance, IPO volumes and data licensing tied to index usage could slow, affecting listing fee revenue and overall earnings.
• Record revenue of ₪183.3 million and an adjusted EBITDA margin of 63.1% benefited from expenses holding at ₪84 million while volumes surged. Management already indicates expenses are expected to rise modestly over 2026 from areas like compensation, IT and cyber, which could dilute operating leverage and reduce net margins if revenue growth normalizes.
• Regulatory and structural reforms such as the corporate bond index liquidity criteria and OTC clearing model may not deliver the same growth in activity indefinitely. If competition for listings or trading shifts activity to other venues or instruments, Tel-Aviv Stock Exchange could see slower growth in clearinghouse revenues of ₪53.9 million and data and connectivity income of ₪30.1 million, which would limit long term revenue and earnings expansion.

Valuation

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

• The analysts have a consensus price target of ₪145.0 for Tel-Aviv Stock Exchange 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 ₪954.3 million, earnings will come to ₪400.0 million, and it would be trading on a PE ratio of 46.2x, assuming you use a discount rate of 9.4%.
• Given the current share price of ₪123.0, the analyst price target of ₪145.0 is 15.2% 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.