BGCP Partners: 46% of Market Cap is in stock of Financial Exchange Comanies

BGCP has sold two segments of its business for $1.2 billion in stock of NASDAQ (NDAQ) and Intercontinental Exchange (ICE).

A few months ago, we wrote a piece on BGC Partners (BGCP) and BGCP has been one of our top rated stocks.  As discussed, BGCP was in an acquisition battle with CME Group (CME), operators of the Chicago Mercantile Exchange, over GFI Group a European-focused middle market broker.  BGCP won with an offer of $750 million.  The crown jewel of GFI’s business is an electronic trading platform known as Trayport.   Trayport’s specialty is trading energy and commodity contracts.


As anticipated, BGCP recently announced the sale of the Trayport platform to Intercontinental Group (ICE), operators of the NYSE.  The sale price is $650 million in ICE stock.  In 2014, GFI’s revenues were split with Trayport trading platform accounting for around $80 million and the balance of GFI generated $640 million.   Based on these numbers, BGCP sold Trayport for 8 times revenues and paid 0.16 times revenue for the remaining GFI business.    


In addition to this sale, BGCP recently sold another trading platform used for trading currency futures to NASDAQ for $750 million, mainly in stock, which is to be paid out over the next 12 years at about 1 million shares annually, or a value of about $50 million a year. 


Combined, these two deals create assets of over $1.2 billion, or about 46% of the market cap of BGCP at $2.6 billion.  BGCP’s revenue are split 60% financial services and 40% real estate services. 


As shown, BGCP is a niche financial services and real estate services company.  While the real estate services are fairly straight forward as a leading commercial property leasing and sales broker, the financial services are a bit more specialized.  A good description of the financial services is provided by the company:

The Financial Services segment provides brokerage services, including fixed income securities, interest rate swaps, foreign exchange, equities, equity derivatives, credit derivatives, commodities, futures, and structured products. This segment also offers trade execution, broker-dealer, clearing, processing, information, and other back-office services to a range of financial and non-financial institutions; and electronic marketplaces comprising government bond markets, interest rate derivatives, spot foreign exchange, foreign derivatives, corporate bonds, and credit derivatives. In addition, it provides screen-based market solutions, which enable its clients to develop a marketplace, trade with their customers, issue debt, trade odd lots, access program trading interfaces, and access its network and intellectual property; software and technology infrastructure for the transactional and technology related elements; and certain technology services. Further, this segment offers financial technology solutions, market data, and analytics related to select financial instruments and markets through BGC Trader and BGC Market Data brands.


BGCP’s client base is diversified and primarily serves banks, broker-dealers, investment banks, trading firms, hedge funds, governments, corporations, property owners, real estate developers, and investment firms, as well as institutional clients.  62% of its business is from the Americas, 30% from Europe, and 8% from Asia.


BGCP was originally spun off from privately-held Cantor Fitzgerald, and Cantor still owns 25% of outstanding shares.  Management owns 31% and the public owns the remaining 44%.  Howard W. Lutnick is the Chairman of both BGC Partners and Cantor Fitzgerald.


Last month, BGCP raised their divided 16% and the stock now yields 5.96%.  BCGP is not a REIT or a MLP, and its dividends are qualified for tax purposes.


Investors should keep in mind the stock is used as a compensation tool for management.  This is the reason for a large yield and lots of stock options.  On the positive side, retail investors are linked at the hip with management’s self-serving goal of higher dividend income and higher share prices.   


BGCP is an underfollowed niche financial firm managed by some of the smartest minds on Wall Street.  Their push into real estate services should do well over the next few years as the fragmented commercial business consolidates and is the company’s growth platform going forward.  The current stock price of under $10 is a bargain based on BGCP’s holding of $4.60 in ICE and NASDQ stock. BGC