Hellenic Exchanges Athens Stock Exchange SA

ATHEX:EXAE

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Vassilios, your Chorus Call operator. Welcome, and thank you for joining the Athens Exchange Group conference call to present and discuss the first quarter 2024 financial results. [Operator Instructions] And the conference is being recorded. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Nick Koskoletos, CFO; and Mr. Stelios Konstantinou, Head of Investor Relations. Gentlemen, you may now proceed.

[Stelios Konstantinou, executive]

Good afternoon, ladies and gentlemen, and good morning to those of you listening to us from the other side of the Atlantic. We would like to present the financial results of the group for the first quarter of 2024, which were published yesterday and are available on the IR section of our website, and then take any questions that you might have.

I will now give the floor over to our CFO, for some comments before we present our financial performance in more detail. Nick?

[Nikos Koskoletos, executive]

Thank you, Stelios. Good afternoon, and good morning to all. So in the first quarter of 2024, just to highlight some points. The average daily traded value increased by 33%, as you know, to reaching EUR 148 million for the quarter compared to EUR 113 million in the first quarter of last year. And a couple of points on this particular item that is important to underscore versus the underlying dynamics correlated to our revenue from trading. One is that we had fewer trading days in 2024, 61 days versus the 63 days that we had in the first quarter of 2023. And out of the EUR 148 million, if we were to -- due to a daily attribution of the placement from the Piraeus Bank shares, that's close to EUR 25.5 million. And that particular volume segment effectively, given the fact that it was a prioritization, it's priced at a 60% discount.

And that fees on that were 0.5 basis point on each side. So I think that's -- another important item to highlight. The average market cap stood 33% higher than the first quarter of last year. The market cap in the second quarter has exceeded EUR 100 billion marking a milestone for the first time since 2008. Obviously, with the different market constituents there. But overall, volumes in the second quarter are holding up nicely. On the operating expenses, those were up 12% compared to a 9% increase for the full year of 2023.

I think it's important here to note that 3/4 of the increase effectively attributed to the provision for variable compensation. And if you were to look at the underlying cost drivers, those are more muted at 4%, and we have there the impact of the wage adjustments from last year and the annualization of that and the increase in the headcount, which we expect to stabilize at current levels. We need to stress that approximately 1/3 of our employees are in IT. And the wage inflation in that particular segment basically outpaces that of the overall economy. So I'm sure you've seen in other IT companies that it's well in the double digits.

It's important for us to remain competitive as an employer. We continue our marketing efforts to promote the [ recapital ] market and broaden the investor base that has access to our listed companies. On June 6, we will be organizing a mid-cap conference in Paris, and we have other events lined up later in the year, including our headline road shows. I'll stop here, and let Stelios go through our performance in more detail, and we'll be happy to take any questions at the end of the call. Stelios?

[Stelios Konstantinou, executive]

Thanks, Nick. So let's start with the overview of our first quarter 2024 financial performance from the top. The consolidated turnover of the group in the first quarter of this year was EUR 13.5 million compared to EUR 11.7 million in the first quarter of last year, up 16%. Revenue from trading represents 18% of total consolidated turnover. In the first quarter, it was up 5% at EUR 2.4 million compared to EUR 2.3 million. I would like to remind you, of course, that on January 1, a new pricing scheme went to effect in the cash market, replacing the 1.25 basis points flat rate. Today, we have trading bands -- bundles, if you will, which we introduced with minimum guaranteed charges, which members have to prepurchase each month.

The fee is further differentiated depending on the phase, i.e., what the trading takes place at the open and closing auctions, so we doing continuous trading or at the close. And of course, the higher the band the member selects, the lower the headline fee is. In the first quarter, this had an effect compared to the previous pricing policy of an approximately 5% discount. And you can see the specifics in our -- in the relevant decision listed there or if you want more details, we'll be happy to help you out.

Moving on. Revenue from post-trading made up 44% of total turnover and amounted to EUR 6 million compared to EUR 5.4 million in the first quarter of last year, up 10% on the back of higher trading activity in the cash market. As far now as the derivatives market is concerned, both trading and post-trading. In the first quarter of this year, trading activity measured by the average daily number of contracts, dropped by 20% to 43,000 contracts compared to 53,800 last year. Revenue from derivatives was down 13.5% with the average revenue per contract up 7.6% at EUR 0.236 compared to EUR 0.219 per contract.

Our fees, as you know, for derivates contracts depend on the type of investor, the product being traded and the prices of the underlying securities and as a result, market volumes and our revenue do not always go hand-in-hand. We do, however, expect volumes to pick up during the year, especially following the tax changes, i.e., the abolition of the sales tax on OTC stock lending transactions. Lastly, on derivatives, trading and post-trading revenue in the first quarter of 2024 was EUR 630,000 compared to EUR 730,000 last year, corresponding to 7.6% of total trading and post-trading revenue.

Revenue from listing makes up 12% of turnover, this line includes the quarterly subscription fees paid by listed companies, fees on rights issues, IPOs and other services to issuers and amounted to EUR 1.6 million, up 26% compared to the first quarter of last year. Revenue from data services makes up 7% of total turnover and includes a fee that we collect from data vendors for the provision of Athex market data. The fees that we collect in turn from market data that depends essentially on the number of data terminals to which the data vendors disseminate at this market data too. And in the first quarter, they were up 15%. Revenue from IT, digital and other services makes up 16% of total turnover and includes revenue from digital services, infrastructure and technological solutions to the Energy Exchange Group and Boursa Kuwait.

And this category also includes revenue from services such as Electronic Book Building, AXIAline, AXIA e-Shareholders Meetings, Colocation and others. Revenue from IT and digital services was up 42% to EUR 2.2 million compared to EUR 1.5 million last year. Finally, revenue from ancillary services makes up 2.4% of total turnover. And in the first quarter of this year, it was up 24%. Ancillary services include revenue to support services to the energy exchange, rents and some others.

Moving now to the expense side. Total of expenses increased by 12% in the first quarter of this year at EUR 6.6 million compared to EUR 5.9 million. And if we break that down, we see that personal costs were up 22% in the first quarter at EUR 4 million compared to EUR 3.3 million, while all other expenses were down 0.8% at EUR 2.6 million. Personnel, remuneration expenses account for 61% of total operating expenses compared to 56% in the first quarter of 2023.

Head count at the group on March 31 was 252 compared to 244 at the end of the first quarter of 2023. Turning now to profitability. [indiscernible] is before interest and taxes of the group increased by 24% to EUR 5.3 million compared to EUR 4.3 million in the first quarter of last year. [indiscernible] last, the net after-tax earnings of the group, EUR [ 0.35 ] million, up 31% compared to the first quarter of last year. On the balance sheet now, the cash on March 31 2024 were EUR 68.6 million compared to EUR 63.6 million at the end of 2023. And finally, the proposed dividend for 2023, which will be brought to the annual GM on the 13th of June is EUR 0.24, that's 60% higher compared to last year's, and that's, of course, in line with our bottom line performance.

And with this, I would like to conclude our remarks, and we'll be, of course, with Nick, to take any questions that you may have. Thank you.

[Operator]

[Operator Instructions]

The first question comes from the line of Souvleros Andreas with Eurobank Equities.

[Unknown Analyst]

Congratulation for the set of the results. I have another quick question. It's regarding OpEx. There was a year-on-year growth of 11% in the first quarter. Should we expect this trend to continue throughout the year? Or does the guidance of single-digit growth still holds?

[Nikos Koskoletos, executive]

Yes, thank you for the question. The guidance for the year, single digit growth underlying. On the other hand, given the structure that we have with regards to the variable pay, that's edging that number to double-digit territory. I think that is a safe assumption. But I think it's important to realize that this variable compensation is effectively an embedded automatic stabilizers, should things turn sour, you would expect a decline in our OpEx expenses as well as you see that, obviously, there is an increase -- the moderate increase that you see, there's obviously going to be a decline as well. So the underlying dynamics stay as they are, but that levels remain at -- in terms of activity, levels remain where we are now. They might edge to the lower double-digit figures.

[Unknown Analyst]

Okay. Understood. I have 1 more question. This is regarding the development of new activities. We have seen that the EU emission trading system has already included the cover of CO2 emissions for large ships. And given that Greece is among the top shipping flags, are you planning to reduce the voluntary carbon market. And do you have -- have you made any exercise in order to see the potential benefits from this product?

[Nikos Koskoletos, executive]

So we are involved in the discussion with regards to voluntary carbon credit, I think last year -- last year, we announced that we are collaborating with ACX, it was a global platform there. We are having discussions at the domestic ecosystem on that particular marketplace. The impact that you're mentioning, I think it's a little bit too early, but we are involved in a discussion.

We are looking at it. And we have put fair amount of resources into that particular initiatives. But I think it's a bit too early to quantify any -- to quantify any impact with regards to our operations. But again, we are, I think, early on that initiative. We have the partnership with ACX, and we are constantly continuously looking into the developments and being the pillar voluntary carbon market here in Greece.

[Operator]

[Operator Instructions]

The next question comes from the line of [indiscernible] with AXIA Ventures.

[Unknown Analyst]

Congratulations for a strong set of results. I've got a couple of questions from my side and 1 follow-up on OpEx that my colleague does ask earlier. So this 1 would be I mean, could give us insight on what is the ideal cost-to-income ratio in the other part of the group, given that both the profitability and the cost lines are increasing.

The second question would be on the new pricing policy that came in effect in the first quarter. If you could help us understand the effect you expect it to have on the revenues? And which of the fee lines you anticipate that will benefit most and whether there any upside risks that we should have in mind? So this is question number 2.

And my third question is on the developed market status. Since we're approaching the month of June, during which MSCI is reviewed on ideally, if you anticipate the positive effects of the development to start showing during the watchlist period or right after the official attainment of the bill stated. And if you could talk a little bit more about the DM status acting as a key driver to higher market valuations and there's some sustainability.

[Nikos Koskoletos, executive]

Okay. I'll -- let's start with the -- on OpEx. I think the effective -- of what the things that we a focusing on is to have -- to maintain the operating leverage that is embedded in our business model. So we -- as revenues increase, we follow that margins do expand.

So in terms of cost to income, I would expect that to remain around the levels that it has been that was in 2023 as well. So it would be below 60%. That's 1 element with that. And effectively, if market dynamics stay where they are, we might have -- go lower as well and not be at the higher 50s but even go lower. That's one. Two, with our pricing scheme, the benefit is the fact that we offer our members a more structured approach to how they themselves engage in the market with a more appropriate pricing scheme for their own particular needs.

So effectively, we are -- is a smaller effective trading fee -- so the particular impact would be on the trading line, not on the post-trading. It will be on the trading line. But on the other hand, the fact that we have increasing volumes, I think, has also been facilitated by having a pricing scheme that caters to those that wish to engage more and therefore, increase the velocity in the market. And actually, that has synergies across market participants.

And the third question was with regards to DM.

[Unknown Analyst]

Yes, that's correct. Since we are approaching the month of June, I think that this is a month during which MSCI is doing its review, if you anticipate the positive effects to start kicking in during the watchlist period or right after the attainment of the DM status?

[Nikos Koskoletos, executive]

Okay. So let me step back for a second here. One, I don't know what -- we don't know what MSCI is going to do. Our thesis is that have at least 1 out of the 4 major index providers, i.e., MSCI, FTSE, Stocks Jones, S&P to be -- to actually include us in the discussion for DM. That's one. Second, I think the fact that we are engaging in operational improvements that we have made operational improvements in order to be prepared for the DM status and to qualify as a DM because there's the operational readiness with regards to market accessibility and then there's the market size.

The market size, we cannot affect. The operational readiness though, in terms of the improvements that we've had, I think that's something that the market has already taken notice of -- 1 particular item that I think will help our revenue stream is the abolishment of the tax on OTC lending that Stelios mentioned, and that is particularly important to our derivatives market, to have a more vibrant lending market and then as a result, having a more robust derivatives market.

So I can't particularly speak on the MSCI. As I mentioned, the overall -- our overall target is to have at least 1 -- and to the extent that we make -- we have made improvements and we market these improvements to the market and the participants in the market, I think that in itself improves overall accessibility and investor engagement. And I don't know -- I can't speak about what impact they will have on market valuations or in the short term, medium term.

Obviously, in DM, discount rates tend to be smaller just because of the market participants and the structure of the market. So I think we've made these improvements. But 1 thing that we should keep in mind is that -- and I think I'll take this opportunity and say it is that Greece is -- there are more active investors in the DM world than there are in the EM. Active investors are the ones that are off benchmark, obviously, because they're active investors and tend to be more engaged into the market, thus producing more trading volumes.

And because strategically, our interest in primary objective is to be a market where there's robust trading activity, that's the underlying rationale with regards to what it is that we're doing.

[Operator]

[Operator Instructions]

The next question comes from the line of Curtis Petros with Optima Bank.

[Petros Tsourtis, analyst]

One question, if I may. Can you give us a color on your CapEx requirements for the full year?

[Nikos Koskoletos, executive]

Okay, CapEx. Yes, the truth is the first quarter, we have not executed much of our budget, it's more tilted towards the second quarter and towards the end of the year, overall estimate for CapEx for the equals to -- we expect the figure to be closer to EUR 6 million.

So that's increased compared to last year. And then we expect that number to gradually over the next [ 2 ] years trend towards depreciation -- so we expect for the longer term, the run rate to be close to EUR 4 million. So this year, there's a little bit of a spike, but still moderate, we don't expect it to significantly impact our free cash generation capacity.

[Operator]

The next question comes from the line of Memisoglu Osman with Ambrosia Capital.

[Osman Memisoglu, analyst]

Just following on the pricing side of things, do you feel this is adequate? Or are you planning further changes regarding pricing going forward?

[Nikos Koskoletos, executive]

On trading or in general pricing?

[Osman Memisoglu, analyst]

Well, both. I mean -- of course.

[Nikos Koskoletos, executive]

No, trading, I think what we've done -- what we've done on trading is the extent that we're willing to do right now because by introducing these bundles, again and differentiating auction versus continuous. I think we're solving for multiple market characteristics and overall improving the market micro structure. So that's 1 thing. Overall, on pricing, yes, we are continuously -- and I think it's something that we've been doing over the last couple of years, especially with new management coming in, going through our portfolio of products and services and looking at our pricing schemes.

And particularly in data, I think we've talked about this and now we're seeing the first results, how the particular line is showing double-digit growth, and we expect that to continue and effectively exhibiting little, like zero elasticity for that amount, at least for the time being, we are acknowledging -- we have acknowledged that on particular things we are much cheaper than we ought to be, and that was a very pronounced [ case ] with data fees and that's why we're very quick on that.

And overall, we are revisiting our product line with regards to pricing and want to be a little bit more competitive on that and where we can improve and obviously, improve the product offering overall. But I do not expect the other particular lines to showcase high double-digit growth in the medium term. But I think the growth that we've seen will kind of follow through for the next -- in the medium term because of these initiatives that we're undertaking right now.

[Osman Memisoglu, analyst]

So coming back to trading, should we assume more or less a 5% impact for the full year?

[Nikos Koskoletos, executive]

Well, a 5% impact on what? Because the other thing is that we have volumes increasing.

[Osman Memisoglu, analyst]

Right. On the [indiscernible] obviously, if we were...

[Nikos Koskoletos, executive]

Okay. But for modeling purposes, for modeling purposes, I would say that would be the effect of price, but you need to be careful that it's on a segment of the trading because the trading line per se in the spot market also has a revenue component that is related to the actual number of orders that enter the system, and that's still fixed. So it's a subsegment of that shares trading revenue that is impacted at that, let's say, 5%. But again, you need to account for increasing volumes as well. So when you model, you need to be wary of that fact.

[Osman Memisoglu, analyst]

Okay. When was it implemented?

[Nikos Koskoletos, executive]

January 1.

[Operator]

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.

[Nikos Koskoletos, executive]

Ladies and gentlemen, thank you very much for participating at this call, at this presentation of our results. We'll be always happy to speak with you in private if you have more detailed questions. Thanks again, and have a great afternoon. Bye-bye.

[Stelios Konstantinou, executive]

Thank you.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.