ASX Share Trading Update

Submitted by Craig Strzelecki on 8 February, 2008 - 11:52

The Australian Securities Exchange (ASX) remains the preferred exposure from stock analyst Macquarie Research Equities among the diversified financial sector. This reflects significant upside relative to the analysts' 12 month price target of $62.21.

The ASX will report its 1H08 result on Valentines Day - February 14 and Macquarie Research Equities (MRE) is anticipating a surprise delivery! (Aren’t we all!) With the share market having fallen around 18% since November, the excess volatility has resulted in increasing trading volumes, which means not only is the ASX tracking along nicely, but it also appears to have been oversold – now trading at a 35% discount to MRE’s target price.

Volumes benefit from volatility. MRE expects the ASX to announce an interim reported profit of $193m, a 58% increase on pcp and at the upper end of consensus estimates. Excluding the prior period SFE integration costs, the adjusted net profit growth is better stated as 39% underpinned by record levels of trade activity and annualised synergy benefits associated with the merger.

With record levels of trade activity and a 12% increase in capital raisings, the group’s EBIT margin is expected to expand. ASX revenue is forecast to grow 23% to $318m and operating expenses to drop by 16%, reflecting the synergy benefits associated with the SFE merger which was effective from 25 July 2006.

MRE 1H08 revenue forecasts for listings are above consensus. This reflects a buoyant period for capital raisings and the annual listings fee (37% of listings revenue) uplift, which is based on the market capitalisation of the entity as at 31 May, and therefore already locked in despite recent market volatility.

The ASX remains the preferred exposure among diversified financials. This reflects significant upside relative to MRE’s 12 month price target of $62.21. The ASX is trading at a discount to global peers and recent weakness represents an attractive investment into a quality franchise. MRE also highlight that the ASX balance sheet is ungeared and the rebates provide a buffer for trading revenue.