CME CME Group Inc

Yesterday, the board of IntercontinentalExchange Inc. (ICE) announced the sanction of a new stock repurchase program worth $300 million to be carried on over a period of time, depending on the market conditions. Including the $85 million of share repurchasing capacity available from the prior authorization, ICE now has $385 million of shares that can be repurchased.

Previously, in August 2008, the board of ICE had authorized a $500 million stock buyback plan that was initially scheduled to expire in August 2009 but was extended to expire in February 2010. Accordingly, the company repurchased shares worth $300 million in 2008.

Following the completion of the prior plan, the board of ICE sanctioned another share buyback plan worth $300 million in February 2010. Under this plan, shares worth $90 million were repurchased during the third quarter of 2010, through open market operations.

While no repurchases were made during the first quarter of 2011, the company had $210 million worth of stock available for buyback, under its current share repurchase program. Accordingly, ICE bought back $25 million of common stock during the second quarter of 2011 and another $100 million of shares repurchase were made last month, at an average price of $109.69.

ICE poses a sturdy balance sheet with strong cash, receivables and capital position. While the treasury cash vigorously exceeds the total debt position, total interest coverage also remains healthy, reflecting minimal capital expending. These factors pave way for efficient capital deployment, primarily through share repurchases.

Besides, the company expects to fund the share repurchases with a combination of cash on hand, future cash flows and by borrowing under credit facilities. Given the economic turmoil, such a healthy and minimal risk-based balance sheet will continue to provide stability and buoyancy to the company in the medium to long term.

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.

In the long run, these factors are expected to generate strong earnings potential and boost ICE’s competitive leverage in the industry, where presence of arch rivals CME Group Inc. (CME) and CBOE Holdings Inc. (CBOE) pose a challenging operating environment.

 
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