Australian Stock Exchange (ASX) Update

Submitted by Craig Strzelecki on 5 March, 2007 - 19:02

Australian Stock Exchange (ASX) have an upgraded share price target of $47.93 from analyst Macquarie Research Equities (MRE). The Australian Stock Exchange (ASX) remains the stock analyst's preferred sector pick with momentum in trading volumes and velocity, likely further upside to synergy benefits and the monopolistic franchise of ASX and SFE trading, clearing and settlement functions support MRE’s investment thesis. Furthermore, MRE is forecasting a 50% improvement in ROE over the next four years, with possible further upside from improved balance sheet efficiency. February was a record month for trading activity, with the volume of trades and value up 52% and 35% respectively relative to PCP. Trading turnover is also currently at record highs, providing the ASX with an exceptional start to the year. Following an outstanding 1H07 result, where the company reported a profit and dividend that beat market expectations, Macquarie Research Equities (MRE) have reviewed their forecasts and outlook for ASX going forward and made the following changes. The ASX posted a record trading month during February, with 4.4 million trades transacted valued at $121 billion, which is up 52% and 35% respectively, relative to PCP. The heightened trading activity is associated with a busy reporting season and volatility sparked by global markets over the past week. Similarly, February was a record for the number of trades transacted on the SFE for that month, with a 25% lift in the volume relative to PCP.

Given the sustained levels of trading activity (YTD, the number of trades on the ASX is up 50% and the value of trades up 31%), MRE has upgraded forecast assumptions for 2H07 trading activity to 30% and 25% for volume and value respectively, which may still prove conservative if the current level of trading activity continues over the coming months. As discussed in MRE's interim results note, the guidance for $14–16m of cost synergies to be realised in FY07 is likely to prove conservative. Furthermore, the $19.1m premises restructure charge associated with the merger includes estimates of net losses on assignment and sub-lease options, of which part may be unwound over coming periods. MRE has reviewed synergy assumptions and increased forecast synergy benefits associated with the SFE transaction to $19m in FY07, with further benefits accruing in FY08 reflecting the full period benefit of occupancy and headcount reductions.

The analyst believes that further upside to synergy benefits exists as ASX explores the next phase of the integration process, which will involve a rationalisation of back-up data centres and possible convergence of trading and clearing platforms. The benefits of converging trading platforms are likely to be material, though longer dated. MRE have upgraded their earnings forecasts in FY07: +3.2%, and FY08: +3.8%. This follows on from additional upgrades MRE implemented post the result, FY07 +9.7% and FY08 +7%.

ASX Limited is listed on the Australian Stock Exchange (ASX) under stock code ASX. You can view their investor website here. ASX was listed on the ASX on 14 October, 1998. Maurice Newman is the chairman of ASX while Robert George Elstone is the managing director. The company is the economic entity provides stock exchange and ancillary services in Australia. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade ASX. Check your charts and good luck with your share trading!