ASX shares slide after Morgan Stanley downgrade
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More news: Shares in the Australian Securities Exchange slumped after Morgan Stanley downgraded the bourse operator from ‘underweight’ from ‘equal-weight’.
ASX shares were last down 5% to $60.73.
Morgan Stanley downgrades bourse operator ASX
The news: Morgan Stanley analysts have downgraded shares in the Australian Securities Exchange citing high valuation to peers and fading revenue growth for the bourse operator.
The numbers: The brokerage downgraded ASX to ‘underweight’ from ‘equal-weight’ earlier, and cut its price target to $55.05 from $58.
ASX shares are down 3.4% to $61.78 in early trading.
The context: Morgan Stanley analysts expect underlying earnings at ASX to fall 1-2% for FY25 and FY26, reflecting lower activity volumes, mainly in capital markets.
They also said while ASX's earnings outlook is stabilising, the forecast 3% earnings per share (EPS) compound annual growth rate between FY24 and FY27 for a valuation of an estimated 25x for FY26 price-to-earnings (P/E) means that ASX shares do not present a strong case compared to the rest of the coverage.
By comparison, ASX's capital market peers such as Computershare and Macquarie Group are on track for mid- to high-single-digit or better EPS growth, they said.
With the new price target, the analysts changed their estimates to a more reasonable 22x FY26E P/E for ASX.
What they said: “We think the capital market recovery in Australia will lag the US and so we don't think that listings and equity-related revenues will grow fast enough to make up for lower rate futures growth,” Morgan Stanley said in a note.
The source: Morgan Stanley research
