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Our outlook captures OTCM's subscription-derived revenue, stable capital structure, and progress toward expanding its product suite to drive growth. OTCM's launch of OTCID is a significant milestone, in our view, with the potential to enhance Corporate Services' sales trends, by enticing companies to subscribe to the highest quality market platform they qualify for within OTCM's platform suite. Elevated trading activity continues to benefit OTCM's transaction-derived revenue, that was up 24% year over year, as total revenue outpaced our estimate. Corporate Services segment revenue returned to growth in 2Q:25, attributable to price increases and a positive impact of OTCID, in our view. EPS rose 7% year over year in 2Q:25, as price increases and elevated trading volume drove revenue growth that outpaced higher expenses. OTCM will remain focused on developing capabilities such as overnight trading through OTC Overnight and MOON ATS, meant to improve the broker-dealer experience and drive growth, in our view. Our $63 price target is based on about 23x our 2026 EPS forecast of $2.65. Our moderate risk rating reflects OTCM's role as a provider of critical market infrastructure and its recurring, subscription-based revenue profile.
OTC MARKETS GROUP INC-A
Our outlook captures OTCM's subscription-derived revenue, stable capital structure, and progress toward expanding its product suite to drive growth. Dollar volume traded on OTC Market platforms showed strong momentum through 1H:25, up 50% compared to the prior year period. Though largely unpredictable, the continuation of heightened market volatility and more retail trading activity should benefit OTC Link results. Strong results from OTC Link and price increases in the Market Data Licensing segment back our estimated 11% growth in EPS in 2Q:25 to $0.62. OTCM officially launched the OTCID market as of July 1. Along with improving market quality, we think the company could see a marginal revenue uplift from subscriber transitions. Management has commented that early data on OTCID has fostered an uptrend in Corporate Service sales. OTCM's balance sheet remains a key strength, with no debt and ample liquidity for capital allocation priorities. Strong cash flow generation supports OTCM's shareholder returns program, which includes an annualized dividend of $0.72 per share along with a special dividend typically payable in the fourth quarter each year. Our $63 price target is based on about 23x our 2026 EPS forecast of $2.65. Our moderate risk rating reflects OTCM's role as a provider of critical market infrastructure and its recurring, subscription-based revenue profile.
OTC Markets Group’s (OTCM’s) Q122 net income was up 11% y-o-y despite weaker financial markets trading volume and prices. Corporate services (+51% y-o-y) and market data licensing (+9% y-o-y) revenue was as resilient as expected and compensated for the 47% decline in OTC Link revenue. However, operating expenses rose by 12% due to rising staff compensation and IT. OTCM purchased Blue Sky Data for $12m cash in May 2022, allowing OTCM to improve its value proposition and expand its subscriber base. We maintain our assumption that markets will remain choppy due to concerns about inflation and rising interest rates. We have cut our EPS forecasts for FY22 and FY23 by 19% and 17% respectively to reflect higher operating expense assumptions. We have cut our dividend forecasts by 20% but note that this could be conservative given OTCM’s strong balance sheet and cash flow generation.
OTC MARKETS GROUP INC-A OTC Markets Group Inc.
Q421 was another good quarter for OTC Markets Group (OTCM), with revenue up 32% y-o-y to $26.2m and earnings up 58% y-o-y to $9.1m. Revenue was relatively flat on the previous quarters in FY21, but there was an underlying change in the revenue mix as the Corporate Services and Market Data Licensing divisions, which are more resilient in turbulent market conditions, grew to offset OTC Link, which peaked in Q121 in line with the trading volumes on OTCM trading platforms. We expect markets to remain choppy in 2022 due to concerns about inflation and rising interest rates. For FY22, we have cut our EPS estimate by 3% and forecast a 9% decline in revenue and earnings, but expect growth to resume in FY23. We assume OTCM will maintain its FY21 dividend (up 73% from FY20, with a current year yield of 3.4%) due to its strong balance sheet, cash flow generation and track record of a generous dividend payout.
OTC Markets Group’s (OTCM’s) Q321 revenues were 20% ahead of our expectations, driven by trading (+22%), Market Data Licensing operations, which we consider to be a high-value business (+6%) and Corporate Services (+32%). Net acquisition of corporate clients has tempered marginally from Q221 but remains elevated, which bodes well despite a likely normalisation in trading activity. We raise our EPS forecast by 8% for 2021 and 14% for 2022. Management’s confidence prompted it to maintain the quarterly dividend at $0.18/share and to announce a special dividend of $1.50, and we expect the group to pay a similar special dividend in 2022.
While elevated US equity market volumes drove up OTC Markets Group’s (OTCM) trading revenues 40% ahead of our expectations, higher P/E multiple divisions of Market Data Licensing and Corporate Services also exceeded (by 9% and 15% respectively). Net acquisition of corporate clients has accelerated, which bodes well despite a likely normalisation of trading activity. We raise our EPS forecast by 12% for 2021 and 19% for 2022. Management’s confidence in the business has prompted it to increase the quarterly dividend to $0.18 from $0.15 and we expect the group to pay a special dividend of 65c in 2021 and 75c in 2022.
Exceptionally high US equity market trading volumes in the first quarter benefited OTC Market’s (OTCM’s) revenues and at the same time demonstrated the resilience of its systems. The group is maintaining its focus on developing its transparent and cost-effective markets and, encouragingly, the strengthening of net additions of corporate clients has continued, which should be beneficial even as trading activity normalises.
OTC Markets Group’s (OTCM’s) fourth quarter results exceeded our estimates for the third quarter in a row reflecting continued strong transaction volumes. While these may normalise in due course, OTCM’s long-term focus on enhancing the transparency and efficiency of its markets is being rewarded by increasing regulatory recognition that should progressively contribute to the value of its offering to clients and to its own valuation.
