CME CME Group Inc

Yesterday, the board of CME Group Inc. (CME) announced the approval and authorization of a new share repurchase program worth $750 million of common stock. Accordingly, shares will be bought back from time to time over the next 12 months, depending on market conditions.

Over the last few quarters, CME has been posting strong trading volumes, which have also helped strengthen the cash flow and capital position. Hence, CME is dedicatedly working to expand its operations and simultaneously return wealth to investors, thereby retaining market confidence.

Back in February, CME Group’s board approved an increase in its dividend payout policy to approximately 35% of prior year’s cash earnings from approximately 30%. This would in turn result in an increase in regular quarterly dividend by 22% from $1.15 per share, earlier.

The hiked quarterly cash dividend of $1.40 per share was paid on March 25, 2011 to shareholders of record as on March 10, 2011.

Earlier this year, CME also prepaid a $421 million loan under the three-year credit and term loan agreement that was due in August 2011. This revolving facility was further replaced by a $1.0 billion multi-currency three-year revolving credit agreement that will expire in January 2014 and helped reduce interest cost by about $3 million.

Moreover, enjoying a 98% market share of the US future trading, CME is following industry trends and weighing options for inorganic expansion. Particularly, after the February announcement of the $10 billion merger deal between NYSE Euronext Inc. (NYX) and Deutsche Boerse, CME is also considering strategic acquisitions of other derivative operators like CBOE Holdings Inc. (CBOE), who was looking for a buyer recently, in order to propel long-term growth.

However, though operating cash flow remained strong, long-term debt obligations expose CME Group to financial risk. Additionally, interest rate volatility and rising competition pose an operational risk to the company.

Yet we believe that a gradual economic recovery and stable debt ratings are expected to drive volumes further. Moreover, the company’s efforts to promote, expand and cross-sell its core exchange-traded business through meaningful acquisitions, a strong portfolio along with its global presence will generate decent growth in the long run.

On Monday, the shares of CME closed at $295.01, up 1.2%, on the NASDAQ Stock Exchange.

 
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