Aquis Exchange plc: Europe's Stealthy Stock Market Gem?
Overview: Aquis Exchange is a capital markets company best known for its stock exchange which is the home exchange of KR1, and Shepherd Neame.
However, the Exchange is not even the biggest division of the company. Aquis comprises of three divisions: Markets, the Stock Exchange, and Technologies.
Ticker: AQX
Markets: Dual-listing on AQSE Growth Market and London Stock Exchange’s AIM
Market cap: £99 million
Share price: 359 pence
Founded: 2012
Headquarters: Aquis Exchange, Floor 2, 63 Queen Victoria St, London EC4N 4UA
Breakdown
The revenue breakdown between the company’s divisions is as follows:
Source: Aquis Exchange PLC Report and Accounts 2022
Markets
Aquis’ markets division has two related main products: (1) orderbooks, and (2) multilateral trading facilities.
Orderbooks
Aquis Markets operates lit and dark order books covering 16 European markets.
For context, an ‘order book’ is something which facilitates the trade of stocks and equities by connecting buyers and sellers with matching price points. When a new order comes in, the platform automatically checks the book to see if there is an existing order that fills it, resulting in a trade.
A ‘lit’ order book is available and visible to the general public, and a ‘dark’ order book is private and only visible to certain individuals.
For its lit orderbooks, Aquis uses a subscription pricing model which works by charging users according to the message traffic they generate, rather than a percentage of the value of each stock that they trade and does not allow aggressive non-client proprietary trading, which has resulted in lower market impact and signalling risk on Aquis than other trading venues in Europe.
MTFs – multilateral trading facilities
Aquis also operates two Multilateral Trading Facilities (MTFs), one for the United Kingdom and one for the European Union. An MTF is essentially an alternative trading venue when compared to traditional stock exchanges. Unlike traditional exchanges, they can have different fee structures, offer more flexible trading mechanisms, and potentially less regulation.
Aquis Markets offered its clients the ability to trade in excess of 2,000 stocks and ETFs across 16 European Markets.
Stock Exchange
Aquis Stock Exchange is a UK-recognised investment exchange. The biggest companies listed on the AQSE are:
Mears Group plc (£MER): Mears is the leading social housing repairs and maintenance provider in the UK, and has a major presence in domiciliary care. It has a market cap of £358m, and has a dual listing on the London Stock Exchange.
KR1 plc (£KR1): KR1 is a cryptocurrency investment company. Their NAV consisting of the value of their cryptocurrencies (£194m) exceeds that of their market cap of £172m.
Arbuthnot Banking Group PLC (£ARBB): Arbuthnot is a banking and financial services company with a market cap of £168m. It also has a dual listing on the London Stock Exchange.
Shepherd Neame Ltd (£SHEP): You may already know of their pubs, or the ales and beers that they brew. You may also be surprised to find out they are a publicly listed company. They have a market cap of £105m.
Aquis Exchange plc (£AQX): They are dual-listed on their own exchange.
Other notable well-known companies listed on the AQSE are
Daniel Thwaites (£THW): Founded in 1807, it is a pub, hotel and leisure business as well as a brewer.
Adnams (£ADB): They are a brewer, distiller, pub owner and retailer based in Southwold on the Suffolk coast.
Newbury Racecourse (£NYR): The Company owns Newbury Racecourse and stages 29 days of top-class Jump and Flat horseracing per year. In addition, the Company derives income from a number of non-racing activities including conferences, exhibitions, and outdoor events.
Just like its bigger cousin the London Stock Exchange, there are many undervalued and bargain companies listed on the AQSE.
Technologies
Aquis Technologies is the software and technology division of Aquis. It focuses on building better markets via the creation and licensing of cost-effective exchange infrastructure technology and services, including a matching engine and trade surveillance solutions.
Growth drivers
Markets
Aquis’s markets division seeks to grow and gain market share of its MTFs and orderbooks through its pioneering pricing model. It charges using a subscription pricing model (as opposed to usage-based pricing like many of its competitors), this means that it is more cost-effective to potential clients than its competitors. In the short term, this will drive growth. With margins of 60%, it has the freedom to sustain its pricing power should the need arise in the future.
Stock Exchange
In 2023 Aquis outperformed with 16 new IPOs versus the London Stock Exchange’s AIM market only having 9 new IPOs. In 2022, Aquis had 22 listings which also exceeded AIM. If the past is anything to go by, Aquis will continue to outperform AIM.
Aquis has the advantage of having lower listing and ongoing compliance fees than AIM, as well as less stringent listing requirements. While Aquis repeatedly states it has the goal of becoming a European NASDAQ, it has benefitted from being more of a European or Great British equivalent of the OTC Markets in the USA. A majority of the companies listing on Aquis are smaller less-established companies than those that consider the London Stock Exchange as a venue.
Aquis stocks traditionally haven’t been offered by UK brokers. But this is starting to change with Hargreaves Lansdown, Interactive Investor, and other brokers now offering certain Aquis securities to their customers. This means the purchase of their traded companies is easier than ever, which makes increased liquidity much more achievable. In the medium-term, this makes Aquis a more attractive venue for companies seeking to list.
In the UK, if you own Aquis stocks when you die, the Aquis stocks are not subject to inheritance tax unlike stocks trading on the Main Market of the London Stock Exchange. This means that to retail investors, Aquis stocks are a legal means to pass wealth to their family when they die that is not subject to inheritance tax. This could be a catalyst for more retail investing in Aquis, and more companies choosing it as a trading venue in pursuit of the retail investors’ capital.
Management
The CEO of Aquis, Alasdair Haynes has skin in the game with his 4.92% share in the ownership of the company. He has an incentive for its continued success.
Management of the company has a record of good value creation. They acquired their exchange for only £1 (and £3m debt) but now have a profit of £400k annually. So, management essentially bought the exchange business for a PE of 7.5, which is pretty compelling, especially since it looks like it is only going to grow from here (and do so profitably).
All in all, Aquis’ future looks promising.
Quick look at the numbers
With a net income of £4.684m in 2022, Aquis has a PE ratio of 21. Its gross profit and net income have been increasing year-on-year since 2020, and it has profit margins of around 60%. Consequently, at current prices, the company does look like it is good value.
Nonetheless, it has a PEG ratio of around 42, which suggests the company is not growing fast enough to justify its current valuation.
Currently, the writer gives Aquis Exchange plc a HOLD rating.