Share Price: $160 Mkt Cap: $86,000m ADV: $700m
Intercontinental Exchange (ICE), under the leadership of its founder and CEO Jeff Sprecher, has built a rare combination of financial-infrastructure assets. Its Exchanges business benefits from a high-margin, self-reinforcing liquidity moat; Fixed Income & Data Services provides sticky, recurring data and workflow revenues; and Mortgage Technology offers exposure to the structurally growing digitisation of the US mortgage market, albeit at lower margins. Together, these three businesses give ICE a valuable mix of transaction-driven revenues, recurring subscriptions and long-term structural growth.
Two of these three franchises have also benefited materially from regulation. In the aftermath of Enron, the Global Financial Crisis and the LIBOR-rigging scandal, regulators repeatedly pushed activity towards centralised, transparent and well-capitalised infrastructure providers, reinforcing the advantages of scale and incumbency. The key question for investors today is whether that pattern still holds, or whether prediction-market operators such as Kalshi represent a genuinely different threat - one capable of building liquidity without regulation forcing flow in its direction.
That uncertainty is now reflected in ICE’s valuation. ICE’s shares have derated relative to exchange and ratings peers over the last five years and now trade at around 18x 2027 earnings, a 10–20% discount to the peer group.
Source: ShareScope
Part of that discount reflects scepticism around the returns on its $24bn investment in Mortgage Technology and concern over new forms of competition. Yet ICE has still compounded adjusted EPS at around 10% a year over the last decade despite the brake on earnings growth from the investment in Mortgage Technology. If its core exchange and data franchises continue to grow, Mortgage Technology begins to earn an acceptable return on the capital invested, and the threat from perpetual futures proves manageable, the current discount looks increasingly difficult to justify.
Disclosure: I may own some of the shares mentioned in this article. This note should not in any way be construed as financial advice. The purpose of The Curious Compounder is to inform subscribers about companies which I find interesting. I’m grateful for all feedback, especially any negatives or bear points that I may have missed.