FlowTraders-nFlow Traders is aiming for a valuation between €1.35 and €1.7 billion. That’s a lot, more than three times the market cap of a stock like Binck. It seems excessive for an IPO. After all the company made only 68m profit last year. That’s a multiple of more than 21. Not cheap.

2015 will be a great year

However, it’s safe to say the current year will be much better than the last. We’ve seen some rocky days. In the first 6 months Flow made a profit of around 55m. Predicting the yearly result is tricky, but 100m doesn’t look unrealistic. That would indicate a forward PE ratio of 15. More or less the same as rival trader Virtu. See the growth in their yearly profit.

Large difference with Virtu

The difference with Virtu is big. First of all, Flow Traders can’t really compete in mature markets like the USA. Flow Traders has no presence in the large ETF’s such as SPY and QQQQ. They lack the raw speed. In New York Flow Traders has got a small team of 27 people. The results are modest compared to Europe. The trading results in the USA do not see an impressive growth. Flow is active on 94 exchanges, sounds a lot. But Virtu is trading on 225 venues.

In the prospectus the US markets is described as a mature with tight bid-ask spreads. Flow Trader’s market share last year in the USA was a tiny 1%. They expect growth from the US operations because the total market for ETF’s may grow. And not because they would be able to play catch up with more competitive peers.

The trading revenue has been growing, but mainly in Europe.

Same goes for the first three months.

Problems remain

I do like Flow Traders, it’s a professional trading firm with good management. I have a lot of respect for the house Roger and Jan build. It still has a solid position in Europe. But the problems remain.

Not competitive in the US market. Not really growing, no significant market share and mainly dependent on Europe.
Doesn’t really have to be a problem, except for the tendency for markets to mature. This means Flow Traders isn’t able to compete in mature markets. That’s worrysome. Optiver doesn’t split out the profits per continent, but did made a clear remark less than 10% of the profit came from Europe.

Dependent on market turbulence. The turbulence in the market is a second tricky issue. It’s not they’re doing something amazing this year : they benefit from good trading circumstances. A year like 2010 would hurt the growth scenario, and the valuation.

On July 10th the stock will be listed for trading on Euronext Amsterdam. I wonder if Euronext is considering the introduction of options on this stock.

Disclaimer

Again, this post is for discussion purposes only. I have no position in Flow Traders (duh) nor Virtu. Also, as far as I know I’m not competing in the markets against Flow Traders.

Jack
Jack