Virtu 4Q20 schedule and GRoDT market thoughts ?3

10:37 30-Dec-20

Pending home sales declined for the third straight month all across the country due to low inventory and high prices.  The 2.6% drop in volume is mild, but still unexpected.

All the other news this morning is minor and mostly expected... Xebec closing its acquisition financing with full over-allotment.  I still have no inclination to buy the stock above the $6 mark.

Fluence also got a $125M equity investment from Qatar, which leaves AES and Siemens each with 44% stakes, and values Fluence at just over $1b, while the market cap for AES is just over $15b.  AES has been retreating from what I view as unreasonable highs, but is still nowhere near an interesting price point for me.

Those hoping that the market conditions I describe for Virtu would boost BGCP might be disappointed with a mere affirmation of prior guidance this morning, but BGC is more rates oriented and those are stagnant until we learn how the new administration and Fed will really behave.  That process got another minor wrinkle this morning with the death of Congressman-elect requiring another special election in Louisiana.  However, while the 5th district is one of the less Republican leaning in the state, another representative from the party still seems like a foregone conclusion.

I continue to see BGCP as undervalued, and think €/$ touching 1.23 on the European trade deal with China is a sign of better days to come for the company and more sidelining of U.S. influence in both the markets and real world.  BGC management likely has its hands full with Brexit, in addition to corporate, transitioning.  The U.K. Parliament has just passed its end of the breakup deal, and I continue to see the U.K. as foreshadowing America in many ways, with latest being confirmation of the new COVID variant in a Colorado man with no travel history.

Two quick updates:

A $300K order for Vuzix will help a little with the upcoming earnings report, but I still think it pales in comparison to what's happening with a stock price that should still be under $5.

Also, although we learned that home prices surged in October, I'll be looking at the more up to date NAR figures for pending sales tomorrow.  The November iteration for existing sales made it seem like we might be heading into a top.  If prices keep increasing with declining volume, that will make me more worried about the short-term market prospects.

On 12/29/20 8:32 AM, Esekla wrote:

Virtu Financial has scheduled its fourth quarter report for the morning of Thursday, February 11th.  Average analyst estimates call for 77 cents of EPS from $355M of revenue, declining slightly to $333M for 1Q21.

I've already detailed the reasons why I'm expecting at least modestly good quarterly results from Virtu.  My post yesterday morning touched on the gradual restructuring of European markets.  In America, I've also predicted that the ramp of MemX could add over 20% to the bottom line.  As per the chart to right, the exchange is now over $2b in daily traded value.  Nasdaq trades 100x that on a bad day, and NYSE even more, but it's still early days.  I'll be looking for the first measurable impact in this report, and better NMS (national market system) rules and regulation on big banks to should help both the exchange and stakeholders like Virtu going forward.

It's crazy under the surface in the market right now.  The rebate rate on VUZI spiked to almost 200% as brokers tried (unsuccessfully in many cases) to borrow shares for short positions created by call expirations on the 18th.  The company winning some CES awards for its upcoming mass-market glasses probably didn't help, though this happens every year and I do not see it as having much fundamental importance. 

A little more explainable and possibly sustainable is OEG jumping by more than half in just three and a half trading days since it became clear that a renewable energy tax credits would pass.  The 46% rebate rate argues for further volatility, but I find myself also wondering if the trend toward Democratic Senators in Georgia polling is a factor.  To be honest, I doubt the market is paying that much attention, and the race is still too close to call.  A Democratic Senate would probably mean more renewable development and infrastructure spending.  We should know in just over a week; Jan. 6th will be a big day for the Senate.

Of course the potential for more volatility is also positive for VIRT.  However, I think it's more important that the market is under-appreciating how much the company has grown.  The 77 cent EPS estimate is a 180% improvement YoY and better than any other pre-pandemic result.  Yet VIRT is only in the middle of its 5-year trading range.  The way forward won't feature the big, somewhat risky bets that management has made over the past few years.  Any surprises will have to come from the market, but they should all be positive, while management just focuses on increasing income.  The main risk I see here is lack of company-specific news to wake a news-focused market up to value in Virtu, but at this point I'm more worried about the market than the company.