Virtu Financial, Inc.

VIRT Details

Virtu Financial, Inc. (NASDAQ: VIRT) is a leading multi-asset, financial services and products company that uses advanced technology to provide innovative and transparent trading solutions to clients and liquidity to global markets. Its operating segments are 1) Market Making, which deals in buying and selling large volumes of securities and other financial instruments and earning small bid/ask spreads. It provides competitive bids and offers in over 25,000 securities and financial instruments, on over 235 venues, in 36 countries worldwide. 2) Execution Services segment provides client-based trading venues and offers execution services. It earns a commission as an agent for transacting for its clients.

Progressing Towards Efficient Markets: On June 24, 2021, VIRT announced its collaboration with Pyth Network, a decentralized financial market data distribution platform. Under this alliance, VIRT will contribute its unique, real-time market data for asset pricing and usage by smart contracts through high-performance blockchains. Owing to the increasing support from the trading community, the company expects Pyth Network to hold a vital position in the rapidly progressing Decentralized Finance (DeFi) ecosystem which will improve market efficiency and enable the entry of new participants.

Q1FY21 Results: VIRT reported total revenue of USD 1.01 billion for Q1FY21 (ended March 31, 2021) compared to USD 1.00 billion in Q1FY20, registering a slight growth of 1.19% YoY attributable to improvement in the Execution Services segment, driven by an increase in trading volumes in U.S. equities. Operating expenses declined 2.17% YoY in Q1FY21, primarily due to decreased employee-related, and interest and dividends expenses, partially offset by an increase in brokerage, exchange, and clearance-related expenses. VIRT’s net income expanded by 8.29% YoY to USD 239.40 million in Q1FY21 in contrast to USD 221.07 million in Q1FY20.

Key Risks: In FY20, VIRT generated the majority of its revenue from a limited number of clients. The loss of any of these key customers could hurt the company’s financials. In addition, about 19.4% of VIRT’s revenues were in currencies other than USD in Q1FY21, thus exposing it to exchange rate fluctuations. Furthermore, most of the company's revenue is concentrated in the United States; a decline in trading volume, volatility, or downturn in overall U.S. equity could adversely affect the operations and profitability of the company. VIRT operates in a financial services industry, which is subject to several federal and state regulations both within and outside the U.S. The issuance of stricter regulations or non-compliance with required laws could adversely affect the reputation of the company and its revenues and earnings.  

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

VIRT Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: VIRT has decreased 9.26% and 14.44% in the past 1 and 3 months, respectively, and is currently trading around the midpoint of the 52-week range of USD 21.03 to USD 32.35. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 32.10. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 28.44. Considering the correction in the stock price, decent financial performance, associated risks, and current valuation, we recommend a "Watch" rating on the stock at the current price of USD 26.37, down 1.68% as of July 13, 2021, at 01:17 PM ET.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.

World Fuel Services Corporation

INT Details

World Fuel Services Corporation (NYSE: INT) is a global fuel services company engaged in the distribution of fuel and related products in the aviation, marine, and land transportation industries. Its operating segments are 1) Aviation, which supplies fuel and comprehensive services to commercial airlines, regional, cargo, and low cost carries of private and government customers through a network of on-airport fueling operations and third-party suppliers, 2) Land, offering fuel, heating oil and other products to petroleum distributors operating inland transportation market, and 3) Marine, marketing fuel, lubricants, and related products and services to a broad base of marine customers including container and tanker fleets and commercial cruise lines. As of July 13, 2021, the company’s market capitalization stood at USD 1.94 billion.

Taking a Flight Towards Sustainability: On July 12, 2021, INT announced a partnership with JetBlue, a New York-based airline, to supply Sustainable Aviation Fuel (SAF) to the latter at Los Angeles International Airport (LAX). The alliance between the two companies is an initial step towards the aim of zero carbon emissions and achieving environmental social governance (ESG) targets of JetBlue.

Q1FY21 Results: INT reported total revenues of USD 5.96 billion for Q1FY21 (ended March 31, 2021), compared to USD 8.02 billion in Q1FY20, registering a sharp decline of 25.67% YoY attributable to a reduction in volumes across segments and unfavorable pricing primarily due to the negative impact of COVID-19 pandemic. The impact of the weak performance of topline reflected on the operating performance of the company, where INT reported a downside of 46.89% YoY in its operating income to USD 37.6 million in Q1FY21 as compared to USD 70.8 million in Q1FY20. Net income contracted by 54.35% to USD 18.9 million in Q1FY21 vs USD 41.4 million in Q1FY20.

Key Risks: INT operates in the oil marketing industry, which suffered a huge hit due to the outbreak of the COVID-19 pandemic. The imposition of lockdowns and travel restrictions to prevent its spread led to a sharp decline in global commercial activity across the industry. Should this declining trend continue, it could further suppress the demand for fuel and related products. In addition, fuel prices are highly volatile and unpredictable, and any unfavorable movement in their prices could negatively impact the topline of the company. Furthermore, government customers represent a significant client base (sales to the North Atlantic Treaty Organization (NATO) in Afghanistan accounted for 14% of INT’s gross profit in FY20). Hence, a decline in demand or non-renewal of contracts by these customers could adversely impact its operations.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

INT Daily Technical Chart

Stock Recommendation: INT share price decreased 9.39% and 7.62% in the past 3 and 6 months, respectively, and is currently leaning towards the higher band of the 52-week range of USD 18.36 to USD 37.68. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 39.99. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 32.92. Considering the company’s strong balance sheet and growth potential, associated risks, and current valuation, we recommend a “Watch” rating on the stock at the closing price of USD 30.30, down 1.46% as of July 13, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.