Morningstar calls shares in ASX 'undervalued' as bourse operator posts strong first-half
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More news: Shares in bourse operator ASX trimmed early gains but were trading 5.17% higher at $66.46 by 3:09pm, as Morningstar raised its fair value estimate on the stock.
Morningstar increased its fair value estimate on ASX by 3% to $77 following its first-half results this morning. Over the past 12 months its shares have lowered 1.03%.
Analyst Roy Van Keulen said the exchange made the "correct strategic decision" to sacrifice short-term profitability and invest heavily to retain its social and regulatory license to operate.
He also said its shares remain undervalued and not reflective of its long-term margin potential.
What they said: "The exchange showed the first signs of stabilisation in cost growth, an issue since the botched replacement project for its clearing system," said Morningstar analyst Roy Van Keulen.
"Cost growth has been the main market concern for the exchange as the failed Chess replacement caused significant reputational damage."
Bourse operator ASX scales high after strong first-half result
More news: Shares in ASX have jumped nearly 9% to a two-month high of $68.83 after the bourse operator delivered its highest first-half operating revenue and hiked its interim dividend after posting a 10% rise in underlying profit.
UBS analysts said the result was ahead of consensus estimates, benefiting from lower total cost growth, which offset softer revenue outcomes.
The brokerage, however, maintained its 'sell' rating on the stock, warning that FY25 total cost growth guidance of 6% to 9% implies significant cost growth in the second half.
What they said: "Overall, with ASX facing a multi-year catch up on capex, resulting in a rising D&A [depreciation and amortisation] profile which will constrain EPS growth potential and valuation upside," the analysts said in a note.
ASX grows first-half profit, hikes interim dividend
The news: The Australian Securities Exchange (ASX) posted a 10% rise in underlying profit for the six months to December 2024 and hiked its interim dividend, after delivering its highest first-half operating revenue.
The numbers: The bourse operator reported first-half statutory NPAT of $243.5 million, up 5.6% compared to the prior corresponding period.
The increase was softened by a significant item of $10.2 million, reflecting a lease provision for the relocation of ASX's Sydney corporate office. Underlying NPAT grew 10.1% year on year to $253.7 million.
ASX took in operating revenue of $541.9 million, up 5.9% year on year. It declared an interim dividend of 111.2 cents per share, marking a 9.9% increase compared to a year earlier.
The context: ASX said there was an increase in the number of new listings and total new capital quoted half over half.
It said momentum is continuing into the second half of this financial year, including the $32 billion merger of Chemist Warehouse and Sigma Healthcare, which is due to start trading today.
ASX managing director and CEO Helen Lofthouse said that the company's project to replace its clearing and settlement system CHESS remains a "high priority", alongside work to ensure the current system remains "stable and robust".
Last week the corporate regulator opened an investigation into an outage in the CHESS system on 20 December.
The system has been under fire as its replacement program has been hit by delays and a failed experiment with blockchain. ASX abandoned the blockchain system in 2022 and wrote off an investment of $245 million as a result.
The sources: ASX announcement, UBS research, Morningstar research
