Our primary valuation methodology for Deutsche Boerse is a discounted cash flow analysis (€265), supported by relative P/E comparisons (€225). We project cash flows from group operations and adjust for non-cash items such as depreciation. Our model uses the following input assumptions: cost of equity of 8.4%, WACC 7.7%, and a terminal growth rate of 3.0%. We then supplement this approach with a detailed SOTP, applying peer group multiples to the segmental earnings profile. The average of these two approaches is €245, which we set as our target price.

We highlight the following risks to achievement of our target price: (1) Volume outlook. Weaker/(stronger)-than-expected growth in exchange-traded cash and derivative volumes constitutes a downside/(upside) risk to our forecasts. (2) M&A risk. Deutsche Boerse has indicated its focus on organic growth and preference for partnerships over M&A. However, any change of strategy could result in uncertainty, either positively if the deal offers significant accretion, or negatively should the company overpay and a deal is EPS-dilutive, (3) Failure to capitalise on the structural growth initiatives DB1 has outlined e.g. in FICC, OTC clearing, collateral management, SimCorp and data & analytics expansion.