ICE Refuels Energy Pipeline - Analyst Blog
May 27 2011 - 11:55AM
Zacks
On Thursday, IntercontinentalExchange Inc.
(ICE) announced its plan to launch 48 global over-the-counter (OTC)
cleared energy products from June 13, 2011. ICE will now be
offering over 515 OTC energy contracts, along with the products
announced yesterday, comprising more than 420 new cleared OTC
contracts since the launch of ICE Clear Europe in November
2008.
Accordingly, the energy contracts include global oil and refined
petroleum products along with North American natural gas and power.
ICE has scheduled to launch cleared OTC energy contracts in order
to support its market holding.
The company is aware of changing market needs, and attempts to
evolve through its hedging strategies, product modification and
innovation, in turn supporting volumes and the top-line growth in
the long run.
Earlier this week, the company began the trading of 49 global
OTC cleared energy contracts, while ICE launched 19 global OTC
cleared natural gas products on May 16, 2011.
The company even launched 15 global OTC cleared oil products in
April this year, while in February, ICE had initiated the trading
of 21 new gas oil contracts and three new contracts in US thermal
coal futures through ICE Clear Europe. In the last couple of
months, ICE announced plans to launch an additional 100 OTC
products that will propel growth in the long term.
Given that oil and petroleum are significant power-generating
media globally, such energy contracts strengthens ICE’s
international product portfolio. Additionally, continued product
innovation and licensing agreements give way to new contracts and
adds significant volume.
The launch of contracts by ICE in the rapidly expanding energy
sphere further boosts the company’s competitive leverage in the
derivatives and OTC areas, where presence of arch rivals
CME Group Inc. (CME) and CBOE Holdings
Inc. (CBOE) provide a challenging operating
environment.
Growth through product novelty and expansion in the global
emerging markets is very crucial for ICE, given the ongoing
regulatory turmoil that sets limits for speculative market
participants and poses risk of unsatisfactory financial yield for
operationally successful credit default swap (CDS) clearing
initiative. Furthermore, the ongoing consolidation activity in the
industry has been exerting adequate competitive pressure on the
companies. Like other market peers, ICE also bears sufficient risk
on this front.
Overall, we believe that based on the current volatile macro
environment, ICE has a strong revenue-generating product portfolio,
high earnings visibility, consistent cash generation, disciplined
investment and limited balance-sheet risk. These factors are
expected to drive strong earnings potential in the long run.
On Thursday, the shares of ICE closed at $120.37, down 0.6%, on
the New York Stock Exchange.
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