Why I won’t invest in Flow Traders
Flow Traders is aiming for a valuation between €1.35 and €1.7 billion. That’s a lot, more than three times the market cap of a stock like Binck. It seems excessive for an IPO. After all the company made only 68m profit last year. That’s a multiple of more than 21. Not cheap.
2015 will be a great year
However, it’s safe to say the current year will be much better than the last. We’ve seen some rocky days. In the first 6 months Flow made a profit of around 55m. Predicting the yearly result is tricky, but 100m doesn’t look unrealistic. That would indicate a forward PE ratio of 15. More or less the same as rival trader Virtu. See the growth in their yearly profit.
Large difference with Virtu
The difference with Virtu is big. First of all, Flow Traders can’t really compete in mature markets like the USA. Flow Traders has no presence in the large ETF’s such as SPY and QQQQ. They lack the raw speed. In New York Flow Traders has got a small team of 27 people. The results are modest compared to Europe. The trading results in the USA do not see an impressive growth. Flow is active on 94 exchanges, sounds a lot. But Virtu is trading on 225 venues.
In the prospectus the US markets is described as a mature with tight bid-ask spreads. Flow Trader’s market share last year in the USA was a tiny 1%. They expect growth from the US operations because the total market for ETF’s may grow. And not because they would be able to play catch up with more competitive peers.
The trading revenue has been growing, but mainly in Europe.
Same goes for the first three months.
Problems remain
I do like Flow Traders, it’s a professional trading firm with good management. I have a lot of respect for the house Roger and Jan build. It still has a solid position in Europe. But the problems remain.
Not competitive in the US market. Not really growing, no significant market share and mainly dependent on Europe.
Doesn’t really have to be a problem, except for the tendency for markets to mature. This means Flow Traders isn’t able to compete in mature markets. That’s worrysome. Optiver doesn’t split out the profits per continent, but did made a clear remark less than 10% of the profit came from Europe.
Dependent on market turbulence. The turbulence in the market is a second tricky issue. It’s not they’re doing something amazing this year : they benefit from good trading circumstances. A year like 2010 would hurt the growth scenario, and the valuation.
On July 10th the stock will be listed for trading on Euronext Amsterdam. I wonder if Euronext is considering the introduction of options on this stock.
Disclaimer
Again, this post is for discussion purposes only. I have no position in Flow Traders (duh) nor Virtu. Also, as far as I know I’m not competing in the markets against Flow Traders.
I think I’d rather buy some shares in Flow Traders than invest in the HIQ Market Neutral Fund. Incredibly HIQ lost 13% (again) in June. At this rate, their AUM will be negative in 3 weeks time. The torture never stops.
Good thing hiq hires the world’s best traders. I’m sure they will rebound.
Negative AUM, well – nothing would surprise me anymore. Man, look at their losses.
http://www.hiqinvest.nl/
(unrelated to Flow Traders in all aspects..)
WAT? Big loss again ?High watermark is out of sight, so no money to be made. Focus on ” de Giro” and let the trainees manage the neutral fund?
Nice one Jack. Are there any analyst reports out already?
Flow made 40 million (net) in the first quarter and recently announced that Q2 was shaping up to end almost as profitably. A net profit for the full year exceeding 100 million seems like a safe bet. As for their growth in the US, they have more than doubled their earnings in the US in a little over two years. Moreover, I would be inclined to think that it’s ‘easier’ to grow a 1% market share of the giant U.S. market than it is to defend Virtu’s larger one that is based on a nanosecond’s speed advantage. Judging by the “less than 10%” comment Flow appears to be making (far) more money in Europe than Optiver, but Jack simply puts it down to immature markets. Yeah those spreads on LSE and Euronext are really wide huh?
Disclaimer: I have no position in Flow, Optiver or Virtu but I wish I were short HIQ!
@10.44: cant imagine the Giro making any profits either, deemed to go oob.
Good thing the writer is not an analyst because he has several things wrong.
The 1% markets hate in the U.S. Is underrated. Look at the 2014 focus and you will see a large payable. Chances are that the European entity trade in the U.S. Markets but did not use local clearing in ML but used ABN. Hence mkt share is not a good measure.
Virtu has more venues because stocks trade in more venues than ETFs. Also flow has an off exchange business that simpletons will not understand.
This is all I have time for right now. 3 more glaring mistakes will be addressed when I feel like typing again.
many thanks, your majesty
Oops 1.5….
Up big. Haha
long flow, short amsterdamtrader
you can’t short amsterdamtrader, there are no bids in sight
I’d rather buy shares in Optiver, are they listed in Europe or America?
we are employee based partnership, we don’t need outside investors, thanks for your interest
I’ve heard its a company with many shareholders a lot of them aren’t employees? How many you have?
How can I get a job there? If I am the partnership chef can I get shares?
it’ll be surprising if any outside shareholders are not ex-employees
chefs are eligible for 1000 shares every year of employment
Will you sell me your shares? I’m a very big bid?
I run a big hedge fund, who should I talk to about investing in these private trading firms? Is Tibra listed anywhere?
yes, it’s listed to go bankrupt shortly
how big is your bid, mine’s 12”
@BigHedgeFund:
I hear James Scott Tydeman is still trying to sell his stake in Tibra. You could probably try to get in contact with him.
but before you do have a read of this:
http://www.ipaste.eu/view.php?id=5319
JT sold his shares about 4 years ago
let’s leave jt’s mum out of this, how about we talk about your mum instead
investing in TIbra would be buy low, sell lower
yeah that sounds about right for senior traders at Tibra with 5 years relevant trading experience