Thanks! StoneX (SNEX) and Virtu (VIRT) are the closest public competitors. Price multiples have swung around quite a bit over the years, ranging from MSD to 20-30x. I would say anything under 15x P/E is fair for the current growth.
Seems like a high-quality, well-entrenched company with good growth prospects. Which to me begs the question, why did they IPO it for roughly 10x earnings?
One additional consideration is that Marex is trading at a 20% book value premium to its peers (that is today - I'm not sure of the premium when you wrote this piece) and P:BV is normally a key metric for a capital regulated business. The historic P/BV range for these assets is 1.5-2.2x over a decade or so. StoneX and Virtu are both also currently at highs (the c2.2) and Marex is 2.8x.
The variation could be explained by Marex RoA (currently 20% on assets is a bit higher than Stonex but that is quite recent (and Virtu ROA is volatile so one would think that would attract a lower valuation - which does show up in low LTM PEs (6-7x at peak earnings). Marex RoE at current valuations i.e. 7% (20/280) isn't all that high.
I also wonder about the growth and competitive environment. I haven't gone back and taken the LME clearing volumes each year for instance though these are public on the website, but suspect the growth is mostly share gain (and the big jumps acquisitive) and it's probably harder assess future uplifts in share than it is to judge a stable and growing market. (For example, might bank regulation ease a bit at the expense of specialist players? I don't know...)
Thanks for the comment and great insights. First, the growth for MRX has also manifested organically from their "land and expand" strategy. It makes acquisitions, for example in EMEA, and leverages its resources to grow organically from there. Some growth is also share gain (to your point) from investment/commercial banks reducing their own commodities trading desks due to the capital intensive nature. The number of FCMs has also declined 55% in the last 20+ years, and the top 10 hold 75% of the margin balances.
APAC growth was 88% the last two years. Recently Marex obtained clearing membership with ASX and SGX. MRX definitely took market share from peers over the last five years too.
Regarding P/B, I hesitate to value MRX on this metric given the strong growth and high margins with little leverage. I don't think it should be valued primarily as a bank. Its regulatory capital cushion is still quite high (over 3x required). To your question, upon publication, MRX P/B was below VIRT but above SNEX.
Really appreciate these comments as it forces me to think harder about my investments. LME is not a predominant exchange for MRX but I will take a look into the volume there too.
I believe P/B is one of the ways these assets are valued so its a bit risky to ignore it. Ultimately RoE is the better metric (a triangulation of P/E and RoA) as the business consumes capital to grow and mostly these types of companies will converge on an appropriate RoE for their risk. I did read all the metrics about trading desks and organic growth and the like in the S1 and the deck - by mentioning LME I was just trying to encourage you to do DD outside of what the company presents (NYSE. OCC, CBOE etc,, also present data), but obviously it's hard without paying for expert calls or market studies...
Thanks! Not ignoring it by any means. I see it becoming a more relevant metric as the company matures. It's a good idea actually for a follow-up article, breaking down the different markets including the international ones.
Interesting idea. What’s a fair PE multiple in this industry? Are there any good publicly traded competitors to compare margins / multiples too?
Thanks! StoneX (SNEX) and Virtu (VIRT) are the closest public competitors. Price multiples have swung around quite a bit over the years, ranging from MSD to 20-30x. I would say anything under 15x P/E is fair for the current growth.
Well appreciated.
Today I'm sharing with you a Life changing เɳѵεรƭɱεɳƭ for the love and support you've been showing me write to Taylor Nelson 📥
±𝟭(𝟱𝟴𝟱)𝟲𝟮𝟯-𝟬𝟭𝟯𝟯-WHATSAPP.
TeII him I sent u. it's very prof!tabIe
Seems like a high-quality, well-entrenched company with good growth prospects. Which to me begs the question, why did they IPO it for roughly 10x earnings?
Thanks for the comment, Matt! Likely various reasons IMHO.
1. PE-backed investor overhang
2. Lack of demand due to market volatility (MRX has no commodity price exposure though)
3. Lock-up expired in 10/2024 and secondary (non-dilutive) share offering at $24 reassured investors
4. Unfamiliar in public markets at IPO
5. Analysts underestimated earnings potential. Happened with AMTM recently as well.
This is what I primarily do. Dive into filings and find the under covered names with underlying growth and low valuation.
One additional consideration is that Marex is trading at a 20% book value premium to its peers (that is today - I'm not sure of the premium when you wrote this piece) and P:BV is normally a key metric for a capital regulated business. The historic P/BV range for these assets is 1.5-2.2x over a decade or so. StoneX and Virtu are both also currently at highs (the c2.2) and Marex is 2.8x.
The variation could be explained by Marex RoA (currently 20% on assets is a bit higher than Stonex but that is quite recent (and Virtu ROA is volatile so one would think that would attract a lower valuation - which does show up in low LTM PEs (6-7x at peak earnings). Marex RoE at current valuations i.e. 7% (20/280) isn't all that high.
I also wonder about the growth and competitive environment. I haven't gone back and taken the LME clearing volumes each year for instance though these are public on the website, but suspect the growth is mostly share gain (and the big jumps acquisitive) and it's probably harder assess future uplifts in share than it is to judge a stable and growing market. (For example, might bank regulation ease a bit at the expense of specialist players? I don't know...)
Thanks for the comment and great insights. First, the growth for MRX has also manifested organically from their "land and expand" strategy. It makes acquisitions, for example in EMEA, and leverages its resources to grow organically from there. Some growth is also share gain (to your point) from investment/commercial banks reducing their own commodities trading desks due to the capital intensive nature. The number of FCMs has also declined 55% in the last 20+ years, and the top 10 hold 75% of the margin balances.
APAC growth was 88% the last two years. Recently Marex obtained clearing membership with ASX and SGX. MRX definitely took market share from peers over the last five years too.
Regarding P/B, I hesitate to value MRX on this metric given the strong growth and high margins with little leverage. I don't think it should be valued primarily as a bank. Its regulatory capital cushion is still quite high (over 3x required). To your question, upon publication, MRX P/B was below VIRT but above SNEX.
Really appreciate these comments as it forces me to think harder about my investments. LME is not a predominant exchange for MRX but I will take a look into the volume there too.
Good luck with it.
I believe P/B is one of the ways these assets are valued so its a bit risky to ignore it. Ultimately RoE is the better metric (a triangulation of P/E and RoA) as the business consumes capital to grow and mostly these types of companies will converge on an appropriate RoE for their risk. I did read all the metrics about trading desks and organic growth and the like in the S1 and the deck - by mentioning LME I was just trying to encourage you to do DD outside of what the company presents (NYSE. OCC, CBOE etc,, also present data), but obviously it's hard without paying for expert calls or market studies...
Thanks! Not ignoring it by any means. I see it becoming a more relevant metric as the company matures. It's a good idea actually for a follow-up article, breaking down the different markets including the international ones.