ICE Launches New Contracts in Feb - Analyst Blog

Yesterday, IntercontinentalExchange Inc. (ICE) announced its intention to launch 21 new gas oil contracts and 3 new coal futures contracts, on February 21, subject to regulatory and Energy Risk Committee approval. Along with the products announced yesterday, ICE will now be offering over 390 cleared over-the-counter (OTC) energy contracts, including more than 295 new cleared OTC contracts since the launch of ICE Clear Europe in November 2008.

Accordingly, ICE has scheduled to launch cleared OTC energy contracts, which primarily include global oil and refined petroleum products, North American power and North American natural gas. To uphold its market holding, ICE remains aware of changing market needs, through its hedging strategies, product modification and innovation, in turn supporting volumes and the top line in the long run.

Meanwhile, ICE also announced that it will also introduce three new contracts in US thermal coal futures from February 21 onwards. These three new contracts will be launched by ICE Europe. The contracts includeCentral Appalachian Coal (UCA), CSX Coal (UCX) and Powder River Basin Coal (UCP). In the last couple of months, ICE promptly announced plans to launch an additional 100 OTC products that will propel long-term growth.

Given that coal represents 45% of the electric power generation in the US, such energy contracts strengthens ICE's global product portfolio. In addition, continued product innovation and licensing agreements gives way to new contracts and adds significant volume.

The launch of contracts by ICE in the rapidly expanding energy sphere further boosts the company's competitive leverage in the derivatives and OTC areas, where presence of arch rivals CME Group Inc. (CME) and CBOE Holdings Inc. (CBOE) provide a challenging operating environment.

Growing through product novelty and expansion in global emerging markets is also crucial for ICE, given the ongoing regulatory turmoil that places limits for speculative market participants and disappointing financial yield for operationally successful credit default swap (CDS) clearing initiative. Like other market peers, ICE also bears sufficient risk on this front.

Overall, we believe that based on the current volatile macro environment, ICE has a strong revenue-generating product portfolio, high earnings visibility, consistent cash generation, disciplined investment and limited balance-sheet risk. In the long run, these factors are expected to drive strong earnings potential.

 
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