Global, responsive, competitive

The International Stock Exchange (TISE) is a stock exchange based in Guernsey currently specialising in listings, notably for bonds. It has been growing strongly for six years, and is looking to diversify its core business into related areas. In particular, it is looking to expand its share of securitisation listings, and has just launched a professionals-only market, QIBM. TISE is a high-margin, cash-generative, profitable business with a strong balance sheet. It is well-positioned to adapt to the constantly evolving regulatory environment, in our view.

• Strategy: TISE specialises in listings that are sought for technical reasons, typically to ensure tax advantages or lower costs, while still being on a recognised exchange. It does relatively little trading; most of the assets are held to maturity by professional investors. It is well-located and highly efficient.
• Opportunities: TISE currently has just a 3% share of bond listings in Europe, and it has revamped its offer with a new market for qualified investors only. It has attracted some important new members in Ireland, and is phasing out membership fees. It is introducing a new trading system to help build liquidity.
• Valuation: There are no directly comparable listed companies – other traded exchanges are substantial trading venues. We have used a DCF model with a high 15% discount rate to reflect the current regulatory uncertainties. Our derived central value is £64m, or 2,275p per share.
• Risks: TISE’s main threat comes from changes to regulations that might make its venue uncompetitive. The risk from rule changes initiated by the UK Treasury seems to be less severe than first anticipated – the definition of who may qualify may prove too narrow or complex to make switching from an overseas listing worthwhile for many issuers. In addition, its reputation for probity is important for attracting listings and approval from various international bodies. Its own shares are illiquid, and typically trade only a few times each quarter.
• Investment summary: TISE aims to expand its customer base and build on its growth record. With a strong track record and robust balance sheet, we believe TISE is well-placed to diversify its revenues and continue to trade very profitably.