Aust Securities Exchange: Investment still on the agenda

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
11 February 2021, 10:00 AM
Sectors Covered:
Insurance, Diversified Financials

  • Aust Securities Exchange (ASX:ASX) reported a 1H21 underlying NPAT of ~A$242m (-3%) on pcp which was broadly in line with Bloomberg consensus and MorgansE (~A$240m).
  • Broadly, the result was positive in our view, with pcp growth seen across the majority of ASX business units (Derivates and OTC markets being the negative).
  • Upward revised expense growth (8-9% for FY21 from 6-7%) and capex (now A$110-$115m for FY21) indicate continued elevated investment/IT spend for ASX in the near term.
  • We downgrade FY21F/FY22F EPS by ~1% on revised earnings assumptions and expense growth forecasts. Our price target falls from A$67.37 (login to view). ASX remains a quality company, in our view, however at ~28x FY22F PE (MorgansE) we see the stock as trading at fair value. Hold maintained.

Result summary

ASX reported 1H21 operating revenue of A$471m (+~3% on pcp) which was ~2% above consensus and in-line with MorgansE.

The revenue growth was seen across 3 of the 4 ASX business units with solid performances from Listings and Issuer services (+11% on pcp) and Equity Post-Trade services (+16% on pcp).

Underlying NPAT of ~A$242m (-3% on pcp) was in line with consensus and MorgansE. 1H21 expense growth of ~8% is above FY21 guidance of 6%-7% growth (IT/BAU spend uplift) and a 112cps fully-franked interim dividend was announced (90% payout maintained).

What we liked

  1. Cash market trading revenue was up ~13% on the back of a higher average daily litmarket traded value of $5.9bn (+~19% on pcp);
  2. Issuer Services revenue was up 43% (A$39m) on pcp due to the higher market turnover leading to a substantial increase (+59% on pcp) in CHESS holding statements;
  3. The number of IPO’s rebounded strongly in the half (85 vs 28 in 2H20) while secondary capital raised remained robust at ~A$34bn (+4% on pcp); and
  4. Austraclear revenue was up 13% on pcp, driven by ~26% increase in the value of balances held (new bond issuances).

Areas of caution

  1. The Derivatives and OTC Markets business continues to underperform with 1H21 revenue down ~8% on pcp. This was driven particularly by subdued activity in Equity options (single stock and index options down 14%/39% on pcp respectively), and a ~16% fall in Futures volumes;
  2. Expenses continue to remain elevated with expense growth of ~8% coming in above previous guidance of 6%-7% growth for FY21. Management have updated FY21 guidance to now be 8%-9% expense growth (elevated due to market-linked activity as well as BAU/IT spend);
  3. Investment spend remains ongoing with capex guidance increased to A$110m-A$115m (vs previous guidance of A$90m-A$95m); and
  4. Revenue contributions from adjacencies/current projects (e.g. DLT/Sympli) remain more medium term (3-5 years).

Changes to forecasts and investment view

We downgrade FY21F/FY22F EPS by ~1% on revised earnings assumptions. Our price target falls to from A$67.37 (login to view).

ASX remains a quality franchise in our view, however at ~28x FY22F PE (MorgansE) we see the stock as trading at fair value. Hold maintained.

Find out more

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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