Last night BATS priced a greater than expected number of shares at the high end of their IPO price range – $19/share. After a very slow market so far in 2016 the ice has been broken by a fairly large at over $250M with six big banks running books and five co-managers bringing the deal.

We’ve done a transcript of the roadshow as well for BATS so use these links to access them (make sure you’re logged in): BATS IPO Roadshow Slides, BATS IPO Roadshow Transcript.

Demand for the issue was said to be very strong which helped the deal price high and should translate into a strong open and maybe some trading follow through post-open. The key is how high they open it.

Where might BATS shares settle in terms of price? NASDAQ (NDAQ) is a direct comparable and the numbers are simple enough for some “back of the envelope” valuation work. First of all BATS did $384M in revenues last year, a good estimate for this year is probably $450M. EBITDA margins have been running at 60% and the company has articulated a planned dividend payout of 30%.

The valuation numbers for NDAQ are: 20x PE on NTM, 2% yield, 11x EV/EBITDA and 5x EV/Sales.

We can apply these ratios to BATS. We project about 100M shares outstanding after the all is said and done and the shoe is exercised. So here it is:

On EV/Sales – $22.50/share, on EV/EBITDA – $29.70/share, on PE – $25/share, on yield – $20/share.

However we need to point out that NASDAQ is much larger and not growing much. So we should expect higher multiples for BATS based on their 25% growth even if there’s a minor haircut for immaturity.

What does it all mean? Within the filing range the shares were a “no brianer.” As we contemplate what will be a strong opening I’d suggest that based on the numbers above a purchase up to $25/share seems like a strong idea. When the brokers initiate coverage there should be some good support for the stock. We’ve used conservative numbers so if you want to take on more risk you could buy above $25 and expect at least high 20’s when they get coverage in a month or so.

We’ll have more, including an IV model that pinpoints valuation better before the quiet period is over. That will help us be ready for coverage.

Exchange Pie

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