Australian Securities Exchange: More to see than the next CHESS move

About the author:

Steven Sassine
Author name:
By Steven Sassine
Job title:
Associate Analyst
Date posted:
11 February 2022, 10:00 AM
Sectors Covered:
Diversified Financials

  • Australian Securities Exchange (ASX:ASX) released a 1H22 result that had revenue (A$501m, +6.6% on pcp) and underlying NPAT (A$250m, +3.5% on pcp) come in a touch ahead of consensus (+1%) and ~2-3% under MorgansE.
  • It was broadly a strong result overall for ASX, with revenue growth (+7%-+17%) seen across 3 out of the 4 business units, with Markets weighed down by subdued futures and equity derivatives volumes.
  • FY22 total expense growth guidance was adjusted up from 5-7% to 7%-8%.
  • CEO Dominic Stevens is set to leave the business at the end of CY22.
  • We lower our FY22F EPS by ~1% on the altered cost growth guidance and lift our FY23F/FY24F EPS by ~4% on revised revenue growth assumptions.
  • Our price target price (login to view) on the above changes and less conservatism in our medium term top line estimates. Trading on ~33x FY22F PE, we see the stock as fully priced. Reduce maintained.

A good result overall but elevated costs were the surprise

ASX reported operating revenue of A$501m (+6.6% on pcp) which was ~1% ahead of Visible Alpha consensus (2% below MorgansE). It was broadly a strong result overall, in our view, with 3 out of the 4 business units showing year on year revenue growth. These included, Listings (A$104m, +17% on pcp), Technology & Data (~A$109m +10% on pcp), and Securities & Payments (~A$147m, +~7% on pcp), with Markets (-~3% on pcp) impacted by subdued Futures/Derivatives volumes.

Underlying NPAT of A$250m (+3.5% on pcp) was ~1% ahead of consensus. Total expense growth (+~7.6% on pcp) was driven by a ~13% increase in staff expense but tempered to a degree by a lower D&A charge.

A 1H22 fully franked interim dividend of 116.4cps was declared (maintaining the ASX’s 90% dividend payout policy).

Somewhat of a surprise, after 6 years at the helm, CEO Dominic Stevens will be stepping down at the end of the calendar year.

What we liked in the result

‘Listings’ revenue pcp growth was robust at +17% to A$104m, driven by higher annual fee income, elevated new listings (150 for 1H22, +76.5% on pcp and highest since 1H08) and ~A$61bn in secondary capital raised (+77% on pcp) leading to ‘subsequent raisings’ revenue growth of ~12% to ~A$35m.

Within ‘Technology & Data’, Information Services revenue of ~A$64m (+~13% on pcp) was driven by elevated demand for equities and futures market data.

The strong on-market trading activity seen in 1H22 (avg daily on-market value= ~A$6.2bn, +~6% on pcp), saw an increase in both cash market clearing and settlement revenue (Equity post trade services revenue of A$77m, +~14% on pcp).

Areas of caution

Revenue in the Markets business (~A$142m, -3% on pcp) was weighed down by subdued Futures volumes (-8.2% on pcp), although the drop was offset to a degree by a pickup in the higher margin electricity futures business.

Austraclear (ex Sympli) saw +1% growth on pcp, however was -11% including the share of Sympli’s operating loss for the period (-A$5.5m vs -A$1.7m in pcp).

With the average investment spread at 10bps (vs 15bps in the pcp), net interest earned on collateral balances fell ~15% to A$24m. Net interest income overall fell ~19% on pcp to A$21.7m on lower collateral balances (A$11.8bn, -7% on pcp) and a fall in portfolio returns.

Changes to forecast and investment view

We lower our FY22F EPS by ~1% on the altered cost growth guidance and lift our FY23F/FY24F EPS by ~4% on revised revenue growth assumptions. Our price target rises to A$72.94 on the above changes and factoring in less conservatism in our medium term top line estimates (e.g. adjacent product revenue opportunities).

ASX is a quality company, in our view, delivering strong results. We also note the longer term optionality of revenue diversification from new adjacencies. However, given its mid-single digit EPS growth profile, we see the stock as fully priced (~33x FY22F PE).

We maintain our Reduce recommendation.

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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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