In my October 5 guest post at Dividend Power, I present my thoughts on why you should consider Intercontinental Exchange (ICE) as a potential investment given its record of consistent growth and value creation.
Some investors make investment decisions based solely on share price behaviour. Share price behaviour, however, does not necessarily always reflect a company's true value and ICE is one such example.
Black Knight (BK) Acquisition
On May 5, 2022, ICE announced the proposed acquisition of Black Knight (BK), a leading provider of integrated software, data and analytics solutions that facilitate and automate many of the business processes across the homeownership life cycle.
The Federal Trade Commission (FTC) immediately stepped into the equation alleging the combination of the two top mortgage technology providers, would drive up costs, reduce innovation, and limit lenders’ choices for mortgage origination tools.
To resolve the FTC's concerns, ICE and Black Knight agreed to divest Empower and Optimal Blue; Constellation Software has acquired both.
With the divestiture of both, the FTC approved ICE's acquisition of BK and BK is now officially under the ICE umbrella.
Intercontinental Exchange - Consistent Growth and Value Creation - Final Thoughts
ICE is a very different company from a decade ago. Its sources of revenue are far more diversified and a greater percentage is expected to be recurring (11% in 2012, 51% in 2022, and 56% targeted following full BK integration). With a significantly higher degree of recurring revenue, ICE's financial results should become somewhat less volatile.
Although ICE's leverage is elevated, it has a track record of successfully deleveraging following previous acquisitions. I have no reason to doubt that ICE's leverage will be restored to its normalized EBITDA leverage level of 3x within the next 24 - 36 months.
I currently hold 200 shares in a 'Core' account and 200 shares in a 'Side' account within the FFJ Portfolio. In addition, I hold a larger number of shares in a retirement account for which I do not disclose details. It was not, however, a top 30 holding when I completed my Mid-2023 Investment Holdings Review.
While ICE appears to be richly valued if we merely rely on historical results, I consider shares to be somewhat undervalued when I look at the long-term growth potential. Nevertheless, I have no immediate plans to add to my exposure.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long ICE.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your research and due diligence. Consult your financial advisor about your specific situation. I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
