IPO Dude

This morning The NY Merc filed an S-1 with the SEC. The long-awaited IPO is finally moving forward. The stock is expected to trade on the NYSE, ticker symbol NMX. I have a more than passing interest in this particular name, as some of you know, and I've been waiting for this news for a while.

So what's this thing really worth? While it's still too early to talk pricing, NYMEX shares are already changing hands in the neighborhood of $40, so we have a decent starting point. Unfortunately, we don't know how many additional shares, if any, the Merc plans on issuing as part of the IPO. Thus, we can't really come up with a price target. We can, however, talk about multiples, to some extent. Comparing the NYMEX to its peers, (CME, BOT, ISE, NYX, NDAQ,) we get an average P/E ratio of 85.17 - pretty rich. The NYMEX shares are currently trading at about 44 times, so in theory, the exchange could double the shares outstanding on the IPO and still be in line with the average of its peers.

On the other hand, the peer average EV/EBITDA ratio is about 22.69 times - very high by any standard. Using a back-of-the envelope calculation, I get to a current value of about 21x for the NYMEX as is. Granted, this number will change dramatically, as the exchange will see a significant influx of cash after the IPO, but presumably also see its market cap soar.

The upshot of these quick calculations is primarily that exchanges in general have very rich valuations. Perhaps this is justified, since these companies have always been privately held up until now, and it's likely there will be significant improvements in margins as well as growth as the pressure of being public forces management to become more aggressive. Perhaps not.