ASX: Result 2012

There were few surprises in ASX’s result. The second half of the 2012 financial year was weaker than the first, as forecast in ASX: Into the light from 8 Jun 12 (Long Term Buy – $29.87). Operating revenue for the year fell 1% to $610m, while underlying net profit dipped 3% to $346m. A fully franked final dividend of 85.1 cents was declared (ex date 27 Aug).

The divisions dependent on equities markets let the side down—again. Lower capital raising activity saw revenue from Listings and Issuer Services fall 11%, while revenue from Cash Markets, which comprises equities trading, clearing and settlement, fell 7%. Offsetting these declines was the Derivatives division, where revenue rose 10% on higher activity levels, and Technical Services, where revenue jumped 12% as ASX’s data centre opened for business.

Regulatory issues will remain ever-present for ASX. To that end, the company is preparing for potential competition in clearing and settlement, which is currently the focus of a government review. It’s also made submissions on the rise of ‘dark execution’, which threatens to drain liquidity from existing markets. Managing director Elmer Funke Kupper indicated regulators are sympathetic and keen not to repeat mistakes made in overseas markets.

If poor market sentiment continues, as in the second half of 2012, you might expect ASX’s profit to fall this financial year. But Funke Kupper’s decision to lift prices on many services during his first year of service should help offset the effect of weak volumes.

The stock has risen 5% since 8 Jun 12 and is on the cusp of a downgrade. But for now we’re sticking with LONG TERM BUY.

The model Income portfolio owns shares in ASX.