Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BGC Group Inc (BGC, Financial) delivered record second quarter revenues and adjusted earnings, with revenue growth of 12% and earnings growth of over 19%.
- FMX and Fenics businesses contributed significantly to profit growth and margin expansion.
- BGC Group Inc (BGC) generated strong double-digit revenue growth across its three largest businesses: RATES, ECS, and foreign exchange.
- Fenics Growth Platforms saw a 22.4% increase in second quarter revenues, driven by portfolio match, Lucera, and FX portfolio match.
- The company provided a positive outlook for the third quarter of 2024, expecting total revenue between $505 million and $555 million, and pretax adjusted earnings between $110 million and $127 million.
Negative Points
- Equities revenues decreased by 10.4% due to lower equity derivative trading volumes.
- Non-compensation expenses under adjusted earnings increased by 5.1%, driven by higher selling and promotion, communications, and interest expense.
- The company is facing significant competition from CME, which has led to public disputes and clarifications.
- FMX is not yet profitable and is expected to reach breakeven by the end of the year, despite significant expenses incurred for its launch.
- The company’s stock is trading at a lower multiple compared to peers with similar revenue and profit growth, indicating potential undervaluation.
Q & A Highlights
Q: Howard, could you elaborate on the inaccuracies in the comments made by the CME regarding FMX and LCH? Also, any future plans for FMX offering treasury offsets?
A: FMX and LCH have all necessary approvals to open in September with Silver futures clearing through LCH, which is fully approved by the CFTC. This has nothing to do with clearing US Treasuries, which FMX clears similarly to BrokerTec at the FICC in the US. The CME's comments were either a misunderstanding or an attempt to confuse. We are fully prepared to open in September.
Q: Have you set a specific date for the FMX launch in September? Are there any potential delays? What KPIs should investors look for post-launch?
A: We are targeting a September launch, and while minor delays are always possible, we are confident in our readiness. Initially, our focus will be on onboarding all players and establishing open interest. By the end of the first year, we aim to have record open interest for a new exchange. Year two will focus on building volume and connectivity, and by year three, we expect full competitive positioning.
Q: Can you provide more details on the revenue growth for Fenics UST and the impact of the fee plan change? Also, when do you expect FMX to break even?
A: Fenics UST revenues grew by 34% year-over-year, partly due to the switch from variable fee plans to subscription plans. FMX, which includes US Treasuries, cash foreign exchange, and futures, is expected to break even by the end of the year. The initial focus is on volume growth rather than immediate profitability.
Q: Given the tough comp in Q4, do you still expect to achieve 10% revenue growth for the year?
A: Yes, we remain confident in achieving around 10% revenue growth for the year. Despite the challenging comp in Q4, our strong performance in Q2 and the positive outlook for Q3 support this target.
Q: Can you comment on the stock performance and valuation relative to peers?
A: Our stock has performed well, but we are trading at a lower multiple compared to peers with similar growth metrics. Companies with similar revenue and profit growth trade at 30 times earnings, while we trade at 10 times. This presents an attractive entry point for investors, especially considering the potential of FMX.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
