Keefe, Bruyette & Woods Downgrades FXCM Inc (FXCM) to Underperform on Valuation
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(Updated - March 16, 2015 9:47 AM EDT)
Keefe, Bruyette & Woods downgraded FXCM Inc (NYSE: FXCM) from Market Perform to Underperform with a price target of $1.50. Analyst Niamh Alexander noted Leucadia's right to force a sale in three years. With this in mind, the downgrade is tied to valuation.
"While management is focused on selling these non-core businesses to repay expensive debt, the message is very much that a sale of the core retail brokerage business is off the table right now. However, even if FXCM repays all of the expensive Leucadia debt, Leucadia still has the right to force a sale after three years and garner a significant portion of the sale consideration before public shareholders in that event, and that outweighs any 'normal' valuation consideration, in our opinion," said Alexander.
Alexander continued, "... we currently estimate EBITDA of the entire FXCM entity of $197 mln in 2016; this includes roughly $65-$75 million of EBITDA of the business units for sale. We assume that FXCM is able to sell these businesses, raising proceeds of $250-$300 million. We apply a range of 6X-10X EV/EBITDA multiple on the remaining core FXCM retail brokerage business 2016E EBITDA of $121-129 million, arriving at a enterprise valuation of $725-$1,290 million. Given the allocation of the proceeds between Leucadia and FXCM, we estimate that FXCM could receive $209-$401 mln from a sale of the remaining FXCM retail brokerage - of which $175 mln of the proceeds would need to be repaid to convertible bond holders. What's then left for equity shareholders after Lucadia's various tiers of proportionate consideration could be between $0.42 and $2.79, by our estimates. This is based on 2016 even though it appears that Lucadia could only enforce its right three years from January, which is 2018."
For an analyst ratings summary and ratings history on FXCM Inc click here. For more ratings news on FXCM Inc click here.
Shares of FXCM Inc closed at $2.58 yesterday.
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