ASX price guide raised
Recommendation
ASX has been bobbing along a little above our trigger for a downgrade to Hold for over a month now, and our procrastination betrays a reluctance to downgrade this high-quality company just as some positive sentiment returns to its markets.
So instead we’re going to bite the bullet and raise our price guides to Buy up to $40 (from $35) and Sell above $60 (from $55). The move reflects the improved sentiment, particularly in the float market, although with few secondary capital raisings, it hasn’t made a big difference to forecasts for 2014 earnings per share, for which the consensus still sits at about $1.98. The bigger move has been to 2015 forecasts, with the consensus rising from $2.03 to $2.12 over the past three months, which is consistent with our view that earnings can grow over the long term by at least 5% per year. These numbers are dependent on what happens to markets, of course, but they have nonetheless moved in the right direction.
We’ve also probably been a little anchored to previous price guides. We had a Buy price of $30 way back in August 2012, but since then sentiment has improved, we’ve had good news on clearing competition and the company has made good headway in developing new sources of revenue, notably in clearing OTC derivatives.
The stock is up 6% since Three stocks to gain from more M&A on 20 Sep 13 (Buy – $35.32) and, with its 90% payout ratio, it offers a fully franked yield of 4.8%. That looks attractive alongside our expectation for long-term earnings growth of at least 5%. BUY.
Note: Our model Growth and Income portfolios own shares in ASX.