1. Intercontinental Exchange | Investment Analysis
Discounted Cash Flow (DCF) Analysis
The team conducted a DCF analysis to get the intrinsic value of the firm and compare it to its
current price. With an implied new intrinsic price, we can tell whether the stock is over or
undervalued.
We adjusted the basic Enterprise Value formula to get the Implied Equity Value Per Share
(Implied Share Price). Formulas below:
Total Enterprise Value: (Share Price x Shares Outstanding) + Market Value of debt
Equity Value Per Share: (Total Enterprise Value – Market Value of Debt)/Shares Outstanding
Stage #1 of the DCF analysis consists on forecasting the first 10 years of ICE between 2016-
2025. It is important to note that we used the average of 1Q16-3Q16 to forecast 4Q16. Even
though 4Q has higher trading activity in exchanges, the team stood away from this method due to
the recent volatility in the markets. Moving on, we used a discount rate/WACC of 6.24% and we
used a current price of $56.65 as of 12/04/2016. We also used a growth rate of 7.5%, which is
the average of management’s growth expectation of 10% and the industry growth average of 5%.
When we forecast and discount the first 10 years of FCFs, we get an Implied Enterprise Value of
$14,179,079,000. Please see table below.
Growth Rate 7.5%
Discount Rate/WACC 6.24%
Implied Enterprise Value $14,179,079,000
Stage #2 is used to calculate the Implied Terminal Value, which represents the intrinsic value of
the firm after the forecasted period of 10 years. The first method of calculating the Implied
Terminal Value is the Perpetuity Method, where we have a 2% perpetual growth rate and a 2%
WACC. This gives us an Implied (discounted) Terminal Value of $24,667,289,000. Please see
table below.
Growth Rate 2%
Discount Rate/WACC 2%
Implied Discounted Terminal Value $24,667,289,000
The second method of calculating the Implied Terminal Value is called the EBITDA Multiple
Method. Which takes the last projected EBITDA (2025) of $5,165,578,000 and we multiply it by
the Industry Average EBITDA of 11.159x, which gives us an Implied (discounted) Terminal
Value of $31,471,344,00. Please see table below.
Projected 2025 EBITDA $5,165,578,000
Industry Average EBITDA 11.159x
Implied Discounted Terminal Value $31,471,344,000
ICE

2. We can now calculate the Implied Equity Value Per Share by first using the perpetuity method.
Please see table below for calculation.
Total Enterprise Value $38,846,368,000
Less Market Value of Debt ($158,492,000)
Divided by Shares Outstanding 560,000,000
Implied Equity Value Per Share $69.09
We can also calculate the Implied Equity Value Per Share by using the EBITDA Multiple
Method. Please see table below for calculation.
Total Enterprise Value $45,650,423,000
Less Market Value of Debt ($158,492,000)
Divided by Shares Outstanding 560,000,000
Implied Equity Value Per Share $81.24
Based on our DCF analysis, the team recommends to BUY the stock due to the higher implied
prices using both the Perpetuity Method and EBITDA Multiple Method.
Sensitivity Analysis
The team also performed a sensitivity analysis in order to evaluate the price sensitivity to
different growth rates and discount rates. As it is generally known, a higher growth rate will
provide a higher price, while a higher discount rate will provide a lower price.
$ 69.09 1.0% 2.0% 3.0% 4.0%
4.0% $ 95.67 $ 113.34 $ 142.79
5.0% $ 77.78 $ 88.59 $ 104.80 $ 131.81
6.0% $ 65.12 $ 72.21 $ 82.13 $ 97.01
7.0% $ 55.72 $ 60.60 $ 67.11 $ 76.22
8.0% $ 48.47 $ 51.96 $ 56.45 $ 62.44
(Highlighted cells are most relevant)
Terminal Growth Rate
DiscountRate/WACC
ICE

3. P/E Multiples Valuation
While performing a DCF is the industry standard to compute the intrinsic value of a firm, it has
its downsides. For example, the DCF model is based off of a set of assumptions which, if proven
to be incorrect, may severely alter the results of the DCF model. Due to the variability that may
exist in the intrinsic DCF valuation model, it is important to also use a relative valuation method
such as the P/E Ratio approach to use to compare the intrinsic approach to the relative approach.
We have calculated the P/E ratio for Intercontinental Exchange using historical data and dividing
the end of year price per share by the reported earnings per share. This calculation was
completed for the years 2011 to 2015 and the results are shown in the table below and visualized
graphically in the line chart below.
ICE Trailing P/E Ratio 2011 2012 2013 2014 2015 Average
Year-End Closing Price
(12/31/xx)
$24.11 $24.76 $44.98 $43.86 $51.25 $37.79
Earnings Per Share $1.38 $1.50 $0.64 $1.71 $2.28 $1.50
Price-to-Earnings Ratio
(TTM)
17.471 16.507 70.281 25.649 22.478 30.477
As the table and graph shows above, there is a large swing in the P/E ratio between years 2012
and 2014. This rapid jump in P/E ratio can be most attributed to a drastic drop in earnings during
2013 due to the $11 billion acquisition of NYSE Euro Next in 2013 which would increase costs
and thus decrease earnings for ICE. Once this price to earnings ratio variation is accounted for
and understood, there is a relatively stable P/E Ratio during this 5-year period.
In addition to calculating the historic P/E Ratio for ICE, a forward P/E Ratio was calculated
using the projected EPS from the Pro Forma Income Statement projections. This forward P/E
Ratio as well as other analyst’s projections for the industry competitors are shown below.
0.000
10.000
20.000
30.000
40.000
50.000
60.000
70.000
80.000
2011 2012 2013 2014 2015
P/E Ratio
ICE

4. As is evident in the above graph, there is a large variation between the forward P/E ratios of the
top 3 industry competitors. However, when examined further possible reasons for this variation
becomes more evident. For example, the market capitalization of these three firms is very
different. The CME Group’s market capitalization is approximately $41 billion whereas ICE’s
market capitalization is approximately $35 billion while NDAQ’s market capitalization is only
$11.17 billion (all market capitalizations as of 12/7/2016). These differences in market
capitalization start to tell a story about why these price to earnings ratios may vary as they do.
Furthermore, during the assessment of which Forward P/E ratios to use during the relative
valuation, it was concluded that using the CME Groups Forward P/E Ratio would be the best
comparison to ICE due to the more similar nature of their market capitalization. It was decided
that the NDAQ price to earnings ratio would not be presented for the relative valuation, however
NDAQ’s price to earnings ratio should not be ignored because NDAQ is still a major player in
the industry. In order to incorporate or capture some of the relative valuation of NDAQ, an
industry average was used in the relative valuation.
Through the relative P/E valuation, it was found that ICE’s implied relative valuation based on
the industry average was $52.04 and when compared to the current price of $56.65 (as of
12/04/2016) would net investors a less of $4.61 per share before fees. However, it is important to
keep in mind that this value is a relative valuation using in part a P/E ratio that does not fully
represent the size of ICE. When a relative valuation was performed using the CME groups P/E
ratio, an implied price of $63.31 was found which would net investors $6.66 profit per share
before fees.
With these two seemingly conflicting valuations, it is important to consider other factors that
may influence the investment decision in either direction. One such factor that may shine light
onto a decision is the EDITDA multiple. The EBITDA multiple is a measure of a firm’s total
enterprise value divided by their EBITDA, which is a proxy for operating income. This is
important when evaluating a company because it shows the potential earnings from equity and
debt that an investor may receive and how much that investor would have to pay for those
24.6
15.32
22.02
20.22
0
5
10
15
20
25
30
CME NDAQ ICE (Predicted) Industry Average
Forward P/E Ratio 2015
ICE

5. earnings. This differs from the P/E Ratio because it is inclusive of the effects that debt has on
earnings.
In the chart below, a comparison of ICE and the industry competitors can be observed:
In this chart it is seen that the EBITDA multiple for ICE is significantly below both the industry
average as well as its competitors. This means that ICE has a relatively high EBITDA or
operating income when compared to the operating income of its competitors. Implying that the
market currently undervalues the earnings of ICE.
By coupling the P/E Ratio method which showed both a sell or hold recommendation and a buy
recommendation for ICE with the EBITDA multiple analysis, it can be concluded that based
solely on relative valuation techniques, investors should buy ICE.
16.88
11.97
4.628
11.159
0
2
4
6
8
10
12
14
16
18
CME NDAQ ICE Industry Average
EV/EBITDA 2015
CME NDAQ ICE Industry Average
ICE

6. Summary
Based on 4 different valuations (2 intrinsic and 2 relative), the final recommendation is to BUY
the stock. Please see graph below for more information.
$56.65
$69.09
$81.24
$52.04
$63.31
30 40 50 60 70 80 90
Current Price
DCF - Perpetuity Method
DCF - EBITDA Method
Comps - P/E Industry AVG
Comps - P/E Industry Leader
Share Price Comparison
ICE