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FX platforms: Cheap at half the price

The re-rating of FX platforms has occurred and Icap is now trading on a higher multiple than the LSE.

Just after State Street bought Currenex for $564 million back in early 2007, I argued that the deal would force the re-rating of FX platforms and the companies that owned them.

State Street paid 22 times forecast earnings for Currenex, which at the time made several other deals, including Icap’s purchase of EBS, look as cheap as chips. I argued that the valuations of several companies primarily active in the over-the-counter markets were far too low, especially when compared with companies such as the London Stock Exchange. At the time, the LSE’s and other exchanges’ shares stood on a multiple of around 31 times future earnings. Icap’s, in contrast, was a lowly 20.

“I like making the odd prediction and I reckon that it’s just a matter of time before others with bigger brains and deeper pockets than me decide Icap’s parts are worth more than their current sum. Spencer will no doubt be rubbing his hands with glee that Currenex’s sale has brought about a re-rating of FX platforms, as will all the VCs who have invested in the likes of Saxo, Oanda, FXall and others.” I boldly stated.

Well, the re-rating has occurred and Icap is now trading on a higher multiple than the LSE, which it deserves, but I must confess to getting the rest completely wrong.

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