Aust Securities Exchange: As expected now all eyes on project delivery
About the author:
- Author name:
- By Steve Sassine
- Job title:
- Associate Analyst
- Date posted:
- 20 August 2021, 10:00 AM
- Sectors Covered:
- Diversified Financials
- Aust Securities Exchange (ASX:ASX) reported underlying NPAT of A$481m (-6% on pcp) which was broadly in line with consensus and our expectations.
- In our view, a broadly positive result with 3 out of the 4 business divisions showing year on year revenue growth (Derivatives and OTC markets being the negative).
- Expense growth guidance (+5%-7%) and capex (A$105m-A$115m) suggests the hopeful peak in investment spend by ASX over recent periods.
- We alter FY22F/FY23F EPS BY ~1%-2% on revised earning assumptions. Our price target increases to (login to view) on the above changes and a valuation roll-forward. Trading on ~33x FY22F PE, we see the stock as fully priced. Reduce. With this note, coverage of ASX transfers to Steven Sassine.
FY21 result summary
Aust Securities Exchange (ASX:ASX) reported operating revenue of A$951m (+1.4% on pcp) which was ~2% above expectations. Revenue growth was seen across 3 out of the 4 ASX business units, with strong performances from ‘Listings and Issuer Services’ (A$258m, +9% on pcp), ‘Equity Post-Trade Services’ (revenue of A$144m, +13% on pcp) and Trading Services (revenue of A$265m, +3% on pcp).
Underlying NPAT of A$481m (-~6% on pcp) was also broadly in line with expectations. Expense growth (+8.4%) and FY21 capex (~A$110m) were both within management guidance. A 2H21 dividend of 111.2cps fully-franked was declared (90% payout).
What we liked in the result
Listings and Issuer services had a strong year with revenue up ~9% on pcp, driven by: 176 new listings (highest number since FY08) with a combined market cap of ~A$41bn; and higher issuer activity leading to a substantial increase (+32% on pcp) in CHESS statements.
Trading Services saw ~3% revenue growth primarily driven by the elevated demand for information services (e.g. market data distribution and increased index royalties from S&P due to heightened retail activity).
FY22 expense growth guidance of 5%-7% points to a moderating expense growth profile for ASX as it cycles a recent period of heightened expenses (e.g. Building Stronger Foundations program).
Areas of caution
The Derivates and OTC business underperformed with revenue of A$285m (-10.4% on pcp), with the RBA’s yield curve control leading to a fall in short-term rates volumes. This was offset to a degree by the new 5-year bond product and strong growth seen in the 10-year instrument (+15% on pcp).
Equity options revenue fell 37% on pcp to ~A$12m (index options volume down ~46% on pcp and single stock options volume down ~14% on pcp).
Cash market trading revenue was down 5% on pcp due to lower on-market trading values (A$5.8bn per day. ~-4% on pcp) along with Auctions and Centre Point values being down 11.5% on pcp (higher margin products).
Net interest income was -44% on pcp due to lower average investment spreads (13bps vs 37bps in pcp), offset to a degree by a 14% rise in balances to A$12.2bn.
FY22 Capex guidance points to another year of elevated spend (A$105m – A$115m), although management suggests this should be the peak of recent elevated investment spend, with it expected to normalise post major works completion (e.g. DLT/Sympli).
Changes to forecasts and Investment view
We make nominal changes to our FY22F/FY23F EPS by ~1-2% on revised earnings assumptions. Our price target increases marginally to (login to view) on the above changes and a valuation roll-forward.
ASX is a quality company in our view and continues to deliver strong results. We also note the longer-term optionality of revenue diversification from new adjacencies and the recent larger technology projects. However, given its mid-single digit EPS growth profile, we believe the stock remains expensive (~33x FY22F PE). We maintain our Reduce recommendation.
Find out more
Download full research note
You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.
If you would like access or more information, please contact your adviser or nearest Morgans office.
Request a call
Find local branch
Need access to our research?
You are also welcome to start a two-week trial of our online platform, which provides access to detailed market analysis and insights, provided by our award-winning research team.
Create trial account
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.