ASX: Interim result 2018
Recommendation
Six months to Dec ($m) | 2017 | 2016 | /(–) (%) |
---|---|---|---|
Listings and issuer services | 114 | 103 | 10 |
Derivatives and OTC markets | 138 | 133 | 4 |
Trading services | 105 | 96 | 9 |
Equity post-trade services | 52 | 53 | (1) |
Other | 1 | 1 | (50) |
Total revenue | 409 | 387 | 6 |
With a 5% fall in the value of shares traded so far this financial year, no-one was expecting much from ASX's interim result, so the 5% earnings increase came as a welcome surprise.
The main reason for the increase was that, although cash market trading revenues fell 3%, this was more than offset by Information Services and Technical Services. The former saw revenue rise 12% thanks in part to ASX taking on the administration of the bank bill swap rate (BBSW) in January 2017, while the latter enjoyed a 13% revenue increase due to higher demand for cabinets and connections in the Australian Liquidity Centre. Overall, Trading Services revenue rose 9%.
The reduced activity did, however, hit clearing and settlement revenues, which fell 1% between them.
Derivatives and OTC Markets increased revenue by 4% thanks to an 8% rise in futures contracts traded. Listing and issuer services revenue rose 10%, despite a 10% drop in the number of initial public offerings, thanks to fee increases and a 22% rise in secondary capital raised.
2017 | 2016 | /(–) (%) |
|
---|---|---|---|
Operating profit | 290 | 274 | 6 |
Net profit | 231 | 219 | 5 |
EPS | 119 | 113 | 5 |
Interim div | 107.2c fully franked, up 5.1%, ex date 8 Mar |
Expenses rose 6.7%, compared to full-year guidance for 8%. Management stuck with the guidance, which implies that second-half expenses will be 3% higher than the first. That will likely offset the impact of increased volatility, leaving earnings flat half-on-half. Second half earnings were also lower than the first in 2017, however, so full-year growth of around 6% is expected.
That would put the stock on a price-earnings ratio of about 24, which is no longer particularly cheap. However, given ASX's quality and cash generation (which allows for a prospective fully franked dividend yield of about 3.8%), growth of 4–6% is plenty and we're more than happy to hang on. HOLD.
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