ASX earns some leeway
Recommendation
The 2019 financial year was a good one for ASX, with decent growth in capital raised, as well as cash market and futures volumes. A bull market, combined with a nice bout of volatility in the December quarter, means the company is poised to report its best earnings growth for years.
We'll say more after the company reports its 2019 results on 15 August. But what we do know is that ASX is unlikely to suddenly become a high earnings growth company. Most years it will probably struggle to report much more than 5% growth, even if 2019 is the exception.
What investors seem willing to pay up for now is earnings consistency. As a result, the stock has jumped 22% since we reviewed the interim result. Perhaps shareholders are also counting on a special dividend following the sale of ASX's 18.6% stake in Iress in February.
At this price, ASX looks expensive on a prospective 2019 PER of 33. Few other stock and futures exchange companies trade on those sorts of multiples. Those that do, such as CME Group or Hong Kong Exchanges and Clearing, are larger businesses with superior growth potential.
Still, we're reluctant to let great businesses go and are prepared to give ASX a bit of leeway. With that in mind we're lifting our Buy price to $60 and our Sell price to $95, while the recommendation remains HOLD.