Aust Securities Exchange: Investment still on the agenda
About the author:
- 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.
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
- Cash market trading revenue was up ~13% on the back of a higher average daily litmarket traded value of $5.9bn (+~19% on pcp);
- 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;
- 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
- Austraclear revenue was up 13% on pcp, driven by ~26% increase in the value of balances held (new bond issuances).
Areas of caution
- 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;
- 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);
- Investment spend remains ongoing with capex guidance increased to A$110m-A$115m (vs previous guidance of A$90m-A$95m); and
- 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.
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