ASX (ASX) News Update

Submitted by Jim Thesiger on 5 June, 2008 - 15:57

ASX (ASX) has a share price target of $40.00 from Australian Stockmarket analyst Macquarie Research Equities.

ASX (ASX) Sell in May and go away?

Event: May volumes continue to be weak, but actually up sequentially:

May volumes continued weak pcp outcomes, but improved from April, which may prove to be a trough. Data showed (avg daily): (1) cash market value $5.7bn, dn 8% on pcp (2) cash market trades 418k, up 67% (3) options contracts 77k, dn 27% (4) futures contracts 248k, dn 13% (5) capital raisings $2.8bn vs. $7.9bn pcp.

Impact: Activity mix and rebate hurdles:

Volume trends remain soft in derivatives relative to our expectations. Despite weakness, trends are actually positive in cash markets relative to our $5.6bn avg daily forecast for FY09E (-15% on FY08E). Rebate hurdle resets are +10% gross revenue growth for cash equities, +8% for futures. Initial and subsequent listing fees are also increased at higher value tiers. Incrementally this news is positive.

Action: Still consensus earnings risk. We estimate 14.9x FY09E, 6.1% D/Y:

Our recent significant downgrades see consensus forward estimates being 5-10% too high in our view. However we also see value emerging in ASX if the following catalysts emerge: (1) consensus earnings expectations rebase (2) Ministerial decisions on competitor licence applications are resolved (3) ASX's competitive response(s) become clearer (4) market activity finds a trough.

Valuation: $40 Price Target (DCF-based), Buy rating

Key positives: (1) long term system growth (2) strong balance sheet (3) diversified business levers to pull. Key risks: (1) barriers to competition are lowering, not completely disappearing (2) clearing risk capital (3) regulatory change.