#74 Deutsche Boerse Group
Leading financial services from Germany
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About Deutsche Boerse
Deutsche Boerse Group is one of the largest providers of market infrastructure globally, offering a wide range of financial services and products across the financial market transaction value chain. The company was established in 1992 and is headquartered in Frankfurt/Main, Germany.
Overview of Deutsche Boerse Group’s Segments and Business Models
Deutsche Boerse Group operates across four primary business segments, each serving distinct aspects of financial market infrastructure. These segments—Investment Management Solutions, Trading & Clearing, Fund Services, and Securities Services—offer solutions across the financial transaction value chain, from pre-trade analytics and trading execution to post-trade settlement and custody. Each segment’s business model is tailored to its role within the ecosystem, generating revenue through a combination of transaction-based fees, subscription services, licensing, and interest income.
1. Investment Management Solutions (IMS)
The Investment Management Solutions (IMS) segment serves institutional investors and asset managers by providing software-as-a-service (SaaS), data analytics, ESG solutions, and index products. This segment has become a strategic growth area for Deutsche Börse, particularly following the acquisition of SimCorp, which offers front-to-back investment management software, and the integration of Axioma, ISS, and STOXX.
The business model of IMS is centered around two core areas. Software Solutions (SimCorp & Axioma) provides SaaS and on-premises licensing for portfolio management, with revenue streams derived from licensing fees, implementation and maintenance services, and consulting. This model ensures high recurring revenue through annual contracts and service subscriptions. The ESG & Index business (ISS STOXX) offers index-based solutions and ESG analytics, monetized through licensing fees from ETFs, exchange-traded derivatives, and corporate governance data subscriptions. ESG compliance requirements have further driven demand for data-driven investment solutions.
In 2024, the IMS segment saw a 49% increase in net revenue to €1,285 million, while EBITDA grew 70% to €468 million. SaaS subscriptions remained a significant revenue driver, with annual recurring revenue (ARR) for SimCorp reaching €608 million, an increase of 17% compared to the previous year. The segment’s growth was fueled by new client acquisitions, increased demand for ESG investment solutions, and strong SaaS adoption.
2. Trading & Clearing
The Trading & Clearing segment underpins Deutsche Börse’s electronic trading and clearing infrastructure. It facilitates transactions across derivatives, equities, commodities, and foreign exchange (FX) while ensuring risk mitigation through clearing services. The segment includes Eurex for financial derivatives, Xetra for cash equities, the European Energy Exchange (EEX) for commodities, and 360T for FX trading.
Deutsche Börse’s business model in Trading & Clearing is built on various transaction-based revenue streams. Financial derivatives trading on Eurex generates income from execution and clearing fees, with additional revenue from collateral management and margin fees. The commodities business, operated by EEX, is structured around trading fees for energy derivatives, particularly in power and gas markets, which saw record trading volumes in 2024. Cash equities trading via Xetra relies on order execution fees, listing fees, and market data sales. Foreign exchange trading at 360T follows a fee-per-trade model, supplemented by subscription-based market data services.
In 2024, Trading & Clearing generated €2,407 million in net revenue, a 6% increase from the previous year, while EBITDA rose 8% to €1,452 million. Growth in commodity trading (+18%) and FX trading (+15%) helped offset lower activity in cash equities. Fixed income derivatives saw sustained demand as interest rate volatility remained a key driver for hedging activity.
3. Fund Services
The Fund Services segment plays a critical role in investment fund operations, handling order routing, fund processing, and fund distribution. This segment, operated through Clearstream Fund Services, serves asset managers, fund distributors, and institutional investors by facilitating the efficient settlement and distribution of funds.
The business model of Fund Services is structured around three main areas. Fund Processing (Vestima) offers automated settlement solutions for mutual funds, ETFs, and alternative investments, with revenue generated through transaction-based fees and administrative services. Fund Distribution (Clearstream Fund Centre) connects asset managers with institutional clients, earning platform access fees and commissions on distributed fund volumes. The segment also benefits from interest income on cash balances held by fund clients, which has grown significantly due to the high-interest rate environment.
In 2024, Fund Services reported €494 million in net revenue (+12% YoY), with EBITDA rising 23% to €279 million. The segment benefited from higher equity market levels, increased settlement volumes (+22%), and new client acquisitions. Additionally, the fund custody business reached record levels, driven by new portfolio transfers and greater investor participation.
4. Securities Services
The Securities Services segment provides post-trade solutions such as custody, settlement, collateral management, and financing services. Deutsche Boerse, through Clearstream Banking, is one of the largest securities custodians in Europe, managing assets across 60 global markets.
The business model in Securities Services revolves around three key revenue streams. Custody services generate income through fees based on assets under custody (AUC), which reached new highs in 2024. Settlement services earn transaction-based fees for processing securities transfers. Additionally, the segment benefits from net interest income (NII) from securities lending, repo transactions, and collateral management, which has been a major growth driver amid sustained high interest rates.
In 2024, Securities Services achieved €1,643 million in net revenue, marking a 9% increase YoY, while EBITDA grew 10% to €1,197 million. The segment was bolstered by higher debt issuance, increased collateralized securities transactions, and strong settlement activity. Despite a moderate decline in interest rates in late 2024, cash balances remained high, sustaining €713 million in net interest income (+10% YoY).
Deutsche Boerse Group’s Long-Term Strategy: Horizon 2026
Deutsche Börse Group's long-term strategy is outlined under Horizon 2026, a comprehensive growth plan designed to expand its market leadership, enhance digital innovation, and increase revenue diversification. The strategy focuses on four key pillars: strong organic growth, Investment Management Solutions (IMS), digital leadership, and capital allocation discipline. By leveraging secular growth trends, Deutsche Börse aims to maintain a sustainable 10% annual net revenue growth rate while delivering strong shareholder returns.
1. Strong Organic Growth: Expanding Core Businesses
Deutsche Boerse's primary growth driver remains its core business segments, which are expected to generate around 7% organic growth per year. This is fueled by secular trends such as increasing demand for index-based investments, financial derivatives, digital trading platforms, and post-trade services.
Key Growth Areas:
Trading & Clearing: Expansion in fixed income derivatives, commodities, and foreign exchange trading. Higher interest rate volatility has increased the demand for hedging instruments, making Eurex a key player.
Securities Services: Growth in custody and settlement services, especially as global debt issuance and collateralized securities transactions increase.
Fund Services: Rising demand for automated fund distribution and settlement solutions, driven by outsourcing trends in asset management.
ESG & Index Solutions: The growing need for ESG ratings, sustainable investment indices, and governance solutions will further accelerate revenue streams.
By maintaining its market-leading positions in clearing, settlement, and index solutions, Deutsche Börse aims to capture market share in key financial infrastructure segments, driving steady revenue growth.
2. Investment Management Solutions (IMS): Expanding Buy-Side Offerings
A significant pillar of Horizon 2026 is the expansion of Investment Management Solutions (IMS), following the acquisition of SimCorp. Deutsche Börse is shifting towards a buy-side focus, offering portfolio management software, data analytics, and investment technology for institutional investors.
IMS Growth Strategy:
SimCorp SaaS Expansion: Increase annual recurring revenue (ARR) for front-to-back investment management platforms.
ESG & Index Leadership: Strengthen Deutsche Börse’s position in ESG analytics, data services, and sustainable investment indices.
Cross-Selling & Synergies: Integrate IMS solutions across Deutsche Börse’s ecosystem, leveraging its existing clearing, trading, and fund services business.
By 2026, IMS is expected to contribute 3 percentage points to the 10% annual net revenue growth target, making it a crucial driver of long-term profitability.
3. Digital Leadership: Expanding Technology & New Asset Classes
A cornerstone of Horizon 2026 is Deutsche Börse’s commitment to digital transformation, ensuring it remains a leader in financial market infrastructure technology.
Digitalization Strategy:
Cloud Technology & AI Adoption: Increase cloud-based infrastructure usage to over 60% by 2026, improving operational efficiency.
D7 Digital Securities Platform: Expand fully digital securities issuance, trading, and settlement. D7 already facilitates over 7,000 digital issuances.
Crypto & Tokenization: Strengthen Deutsche Börse Digital Exchange (DBDX) for institutional digital asset trading. The company is also exploring tokenized securities and blockchain applications.
By integrating advanced analytics, cloud computing, and blockchain, Deutsche Börse is future-proofing its business model while reducing operational risks and costs.
4. Capital Allocation: Increasing Shareholder Value
Deutsche Börse Group is maintaining a disciplined approach to capital allocation, ensuring profitable investments, strong shareholder returns, and strategic acquisitions.
Capital Allocation Priorities:
Dividend Growth: Committed to an annual dividend increase, with a payout ratio of 30-40% of net profit. The 2024 dividend is proposed at €4.00 per share.
Share Buybacks: In 2025, Deutsche Börse will execute a €500 million share buyback program, returning excess liquidity to shareholders.
M&A Strategy: Pursuing strategic acquisitions that align with its core business and digital strategy. The SimCorp integration is a prime example of how M&A is used to enhance market positioning.
This balanced capital strategy ensures consistent value creation for investors, while maintaining financial flexibility for long-term growth investments.
Financial Targets & Horizon 2026 Milestones
Deutsche Börse has set clear financial goals for Horizon 2026, emphasizing strong revenue growth, increasing profitability, and operational efficiency.
Key Targets:
Net Revenue Growth: ~10% CAGR (2022–2026)
EBITDA Growth: ~11% CAGR
Cash EPS Growth: ~11% CAGR
Organic Growth Contribution: ~7% CAGR from core businesses
IMS Growth Contribution: ~3% CAGR from SimCorp and index expansion
By consistently executing Horizon 2026, Deutsche Börse aims to become the most diversified and technology-driven financial market infrastructure provider in Europe.
Key financials
The Deutsche Boerse Group stands out with exceptional margins and a robust financial performance. Revenue grew at an average annual rate of approximately 14% through 2024 (including treasury results). The operating margin consistently exceeds 40%, while the net income margin remains just below 30%, an exceptionally strong indicator of profitability. Free cash flow (FCF) margin now surpasses 40%, further strengthening the company's financial position. Additionally, debt levels remain well under control, ensuring financial stability and strategic flexibility.
2025 Outlook at a Glance
Deutsche Börse Group is set to maintain strong financial performance and strategic momentum in 2025. The company anticipates net revenue of approximately €5.2 billion (excluding treasury results), with total revenue exceeding €6.0 billion. EBITDA is expected to increase to around €2.7 billion, supported by growth in trading, fund services, investment management solutions, and securities services. While net interest income may decline slightly, the company’s diverse revenue streams and cost efficiencies will ensure continued profitability.
The strategic focus on digitalization, ESG expansion, and capital efficiency will enhance operational resilience, while shareholder returns remain a priority, with a €4.00 dividend per share and a €500 million share buyback program planned for 2025. Despite potential macroeconomic challenges, Deutsche Börse’s robust and diversified business model will allow it to navigate uncertainties while continuing to grow its market share in global financial infrastructure.
Stock valuation
Base Case Assumptions
Aligned with Deutsche Boerse Management’s Horizon 2026 strategy, it is assumed that secular growth trends will remain intact, driving mid- to high-single-digit growth across the Group’s core business segments. Trading activity and demand for hedging strategies are expected to remain strong, as heightened geopolitical uncertainties and their far-reaching economic implications continue to fuel market volatility and risk management needs.
Revenue Growth
In the DCF Model, a five-year detailed planning period is used, projecting a 4.4% Compound Annual Growth Rate (CAGR). This trajectory anticipates Deutsche Boerse‘s revenue to reach about $8.7 billion in FY 2029.
Normalized Net Income Margin
I estimate a normalized net income margin of approximately 28% over the forecasting period.
Free Cash Flow
My Free Cash Flow assumptions are based on a Net Capex ratio (Net Capex = Capex - Depreciation) consistent with the average of recent years. Working Capital is also derived from the historical average. The Free Cash Flow estimate does not account for adjustments related to stock-based compensation. These assumptions result in a normalized Free Cash Flow margin of approximately 36%.
WACC
The Weighted Average Cost of Capital (WACC) is set at 7.5%.
Results
Based on these assumptions, Deutsche Boerse’s equity value is estimated at €42 billion. Dividing this by the current number of shares, we derive a fair value per share of €223. In comparison to its latest stock price of €245 the stock appears overvalued.
Adjusting the WACC to 8.0% would lower the fair value per share to €200, while a decrease in WACC to 7.0% would increase it to €250 per share.
Scenarios
In the two tables below, I present my estimated fair values for the stock under three key scenarios: baseline, bear case, and bull case, providing a range for comparison. These estimates are derived from my Discounted Cash Flow (DCF) valuation, reflecting varying assumptions about growth rates, margins, and other key factors.
The baseline scenario corresponds to the 50% column, representing the most likely outcome. The 90% confidence interval represents the bull case, while the 10% confidence interval reflects the bear case, with intermediate scenarios filling the remaining columns. This framework offers a comprehensive view of potential outcomes based on different assumptions.
The second table presents the margin of safety, calculated as the ratio of the estimated fair value to the current share price. To make this more visually intuitive:
Margins of safety above 125% are highlighted in green, indicating that the stock meets my personal margin of safety threshold.
Margins between 100% and 125% are marked yellow, suggesting a moderate level of safety.
Margins below 100% indicate potential overvaluation and are marked red.
This approach provides a clear and systematic way to evaluate the stock's fair value and its attractiveness based on risk-adjusted scenarios.
P/E and EV/EBIT
In addition to my DCF valuation, I analyzed the historical development of Deutsche Boerse’s P/E and EV/EBIT ratios. Currently, both ratios are slightly above their 5-year averages, with the P/E at 22.04x compared to the historical average of 20.34x, and the EV/EBIT at 17,89x versus 16.21x. This supports my assessment that the stock is slightly overvalued at the moment.
Conclusion
Deutsche Börse Group has demonstrated strong financial performance and resilience, driven by robust secular growth trends, diversified revenue streams, and strategic expansion into investment management solutions and digitalization. The company benefits from exceptional operating margins exceeding 40%, strong free cash flow generation, and solid financial stability, positioning it well for long-term success.
The Horizon 2026 strategy lays out a clear path for continued mid- to high-single-digit growth, supported by expanding trading and clearing activities, increasing demand for fund and securities services, and the integration of SaaS-based investment management solutions. Additionally, the company’s focus on ESG, cloud adoption, and digital securities issuance through platforms like D7 and Deutsche Börse Digital Exchange (DBDX) enhances its competitive positioning in the evolving financial infrastructure landscape.
However, despite Deutsche Börse’s operational strength and promising outlook, its current valuation appears stretched based on fundamental valuation models. A Discounted Cash Flow (DCF) analysis suggests a fair value per share of €223, compared to the latest stock price of €245, indicating a marginal overvaluation. Additionally, the stock’s P/E (22.04x) and EV/EBIT (17.89x) ratios are above their five-year historical averages, further suggesting that the stock is trading at a premium relative to its historical valuation multiples.
Given these factors, Deutsche Börse remains a fundamentally strong and well-managed company, but at its current valuation, the stock may not present an attractive entry point for value-oriented investors. For those with a long-term investment horizon, the company’s strong financial position, high margins, and consistent dividend growth make it a solid investment, but potential investors should remain mindful of valuation risks and wait for a more favorable price point before increasing exposure.
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Disclaimer: The information provided in this publication is for educational and informational purposes only and does not constitute financial advice. The content is solely reflective of my personal views and opinions based on my research and is not intended to be used as a basis for investment decisions. While every effort is made to ensure that the information is accurate and up-to-date, the writer makes no representations as to the accuracy, completeness, suitability, or validity of any information in this post and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All readers are advised to conduct their own independent research or consult a professional financial advisor before making any investment decisions. The author is invested in the mentioned stock.