ASX

ASX Limited has a Neutral 2 recommendation and a share price target of $52.80 from Australian Stock Exchange analyst UBS. June 2007 volumes close off another record year: June volumes showed an acceleration of recent growth rates. On a daily avg basis: Cash market turnover was up 60% on pcp at $7.2bn p/day; Cash market trades increased 92%. Futures contract volumes increased 29%; Options increased 24%. Modest net upgrades on turnover and volumes: Including the effect of ASX's one-off additional $8.5m rebate in 2H07, we upgrade FY07E by nearly 5%. This largely flows through to FY08E given rebate structures in cash and futures markets. In addition, a more slightly optimistic (but still cautious) view on capital raisings activity within listings revenue adds an increment to FY08E earnings for 6% total upgrade. ASX positioning as a 'defensive growth' stock: The analysts' recent scenario analysis highlighted ASX as likely providing double-digit (or better) earnings growth under a range of flat or negative volume growth outcomes. Upside leverage to market activity growth is muted by the 75% incremental rebate to customers (25% to shareholders). However, with a CTI ratio in the high 20’s shareholders still benefit from significant operating leverage. New DCF-based price target $52.80, Neutral 2: PT = DCF x (1+WACC) – dividends. Positives for ASX Limited: (1) defensive revenue, with ~$60m of rebates in FY07E (2) strong operating environment (3) low capital intensity. Risks from the Australian Stock Exchange: (1) clearing capital demands (2) listings capital raisings cycle a revenue risk (3) still some technology capex to come.

ASX Limited has a retained outperform recommendation and $53.37 price target per share from Sharemarket analyst Macquarie Research Equities. The ASX yesterday provided a pricing update for the cash equities and SFE markets. This entailed an increase in the cash market rebates for FY07, a cap on the charge for clearing crossed trades, and a simplification of the SFE pricing regime. Following an impressive 30% rise this year, The analysts retain their Outperform recommendation stating that further upside could be gained through a continuation to the strength in investment markets, strong trading activity, SFE synergies, and a solid FY07 result. Refinement of the equities price regime: The ASX Limited announced an increase in the cash market rebates for FY07, to "over $24m", from $16m previously. In effect, the quantum of this rebate is as if a 75:25 gain-share in favour of participants had been adopted since 1 January 2007. The ASX has also refined the charge for clearing of crossed trades in FY08, introducing a $5 cap per side, or $10 per trade. Furthermore, the transitional rebate guarantee for FY08 will be $24m, rather than the $16m as advised previously, assuming that ASX cash equities revenue does not contract. These changes have reduced our FY08 forecast revenue by 1.3%. Fee reductions offset by improved trade volumes: Despite the negative impact of the higher broker rebates, this has been more than offset by a change in assumed trading volumes. As the analyst has flagged for some time, FY08 forecasts previously assumed a material deterioration in trading volumes. They have revised FY08 value and volume growth to 25% and 35% respectively, which is a moderation from the 30% and 51% recorded in FY07. Relative to other exchanges, the ASX Limited has a unique pricing structure as it has put in measures to insulate the volatility in revenue, with the broker rebate being used as the mechanism. In practice, the revised price regime will reduce revenue volatility at the same time as encouraging growth. SFE price regime to be simplified: The ASX has replaced a three-tiered qualification scheme to calculate SFE rebates to a one-tiered scheme, whereby 75% of the exchange fees earned from eligible traded volumes above 73.38m contracts will be paid to the large volume rebate scheme pool. This is a better outcome than what we had previously modelled. However, the full impact of the SFE price changes remains unclear as the ASX plans to remove the local participant category and revise the rebate structure, of which details will not be disclosed until September 2007. Other changes at the edges: In other fee changes, the ASX announced fee reductions for Exchange for Physicals (represents less than 1% of revenue) to 60¢ from 75 cents, and higher charges were flagged for Austraclear annual fees (represents 0.2% of ASX total revenue). Merger-related expense saving targets faster than expected: The ASX mentioned in the pricing update that "the ASX had been successful in achieving its merger-related expense saving targets faster than expected." No further clarity on this brief statement was provided.

Meanwhile, the ASX have a maintained Neutral 2 broker call and a $50.80 share price target from sharemarket analyst UBS. Announces new fee and rebate structures: ASX today announced its FY08E fee and rebate structures. (1) The equities growth hurdle for the rebate has been set at 12.5%, in line with expectations (2) there will be a one-time $8.5m cash market rebate, an unexpected move (3) introduced a $5 per side clearing fee cap for crossings (4) announced 73.38m FY08E volume hurdle for the SFE market, past which 75% of incremental fees will be rebated. Impact: c2% earnings dilutive: They estimate that the changes will potentially reduce our forecast ASX EPS by c2% in FY07E and FY08E. However, they note that the one-off $8.5m equities rebate may have been ‘paid for’ by better than expected cost-out and synergies stemming from the SFE merger. They also note that a volume mark-to-market suggests c3%upside, offsetting the likely impact of today’s announcements. They maintain our Neutral 2 rating on valuation grounds, given ASX’s strong performance year to date. They have run detailed sensitivity analyses on ASX, showing likely double digit (or better) earnings growth under a range of volume growth scenarios. Price Target = DCF x (1+WACC) – dividends. Key positives: (1) earnings revisions remain positive (2) fee structures protect shareholders with ~$50m of rebate in FY07E (3) efficiency opportunities. Key risks to ASX: (1) clearing services may be more, not less capital intensive (2) equity capital market cycle (3) valuation stretch.

Following the recent spate of attempts by private equity (PE) firms to take over listed entities, Macquarie Research Equities (MRE) have investigated which top 100 stocks have the balance sheet capacity to be re-geared, and what a PE firm could pay as a full price. The aim of this analysis was to gauge what would be the full takeover valuation price a PE firm could pay. This is given the current willingness to re-gear balance sheets and the extremely low risk premium being applied by PE investors to equities and debt at present.

ASX Limited has a retained Outperform recommendation and a $50.32 share price target from stockmarket analyst Macquarie Research Equities. April Share Trading Trading has set more records: Trading volumes have also been on the up, with an average of 240,161 transactions executed per day, up 48% on this time last year and a new record. Continued strength in volumes in the equity market may mean a great time for buying exposure into the Australian Stock Exchange (ASX). Robust month for equities: At 240,161, the number of daily transactions in April was a record and up 8.9% on the previous high, set in February 2007. Noting that April was a shortened month (with fewer trading days due to the Easter holiday period), the total value traded on ASX markets during April was $109.4bn, which equates to an average value of $6.1bn per day, up 31% relative to the pcp. The analyst believes that there is upside risk to their FY08 revenue forecasts and have identified several factors that will continue to support equity trading growth
(which accounts for 31% of ASX revenue). These include mandated superannuation contributions, an expected strong surge in voluntary contributions in the coming quarter (as investors take advantage of transitionary arrangements), reinvestment of dividend and takeover money, and investment of Future Fund FUM into the domestic equity market. The analysts have retained their Outperform recommendation for ASX Limited: reflecting their upside relative to MRE’s $50.32 price target supported by a 3.7% fully-franked dividend yield. Momentum in trading volumes – coupled with likely further upside to SFE synergy benefits – should provide a backdrop supporting further near term earnings upgrades.

ASX Limited has a Neutral 2 broker call and price target of $50.80 per share from market analyst UBS. April 2007 volumes report released: strong cash but soft IR futures: ASX today reported (pcp growth rates): (1) cash market volumes +48% (2) cash market value +31% (3) futures -13% (4) options -2%. While equity-related turnover remains strong due to buoyant market conditions, interest rate futures have softened on tough comps. YTD growth still ahead of our assumptions: The YTD numbers show: (1) cash market volume growth at 50% vs. our 35% (2) cash market value up 31% vs. 26% (3) futures 21% vs. our 20% (4) options down 4% vs -6%. A mark to market using these YTD figures implies a 3% upgrade to FY07E EPS. Open interest suggests futures volume pick up. The analyst considers the best short-term indicator for volumes to be open interest, whose growth remains very high, suggesting a strong quarterly roll month in June. Shifting rate expectations should also support volume growth. Their price target for ASX Limited is $50.80 (DCF-based) with a Neutral 2 rating PT = DCF x (1+WACC) - dividends. Positives: (1) mark to market upgrades (2) cost delivery (3) top line strength (4) ~$50m of rebates in 07E a cushion. Key risks to ASX Limited: (1) fee/rebate hurdle resets (2) cyclical mkts (3) potential capital drag in clearing.

ASX Limited has a downgraded Neutral 2 broker call and a share price target of $50.80 from sharemarket analyst UBS. The company has released an update on cash market fees and rebates. The Australian Stock Exchange (ASX) has made minor reductions for crossed trade fees, but more substantive changes to its rebate structure moving to mgt's preferred "gain-share" model. Customers will get 75% (shareholders 25%) of cash market revenues above a likely 12.5% growth rate hurdle in 08E. Fee reductions are also offset by unchanged $ fee caps, meaning greater market value 'capture' in the fee structure. The impact of such changes is marginally EPS accretive in FY08E (~1%) according to the analyst. They see c1.3% 08E EPS accretion, noting that this outcome is entirely dependent on forecast turnover growth. The analyst also mark's to market on volumes. ASX's transactional revenues are potentially more defensive than the mkt appreciates. Outcomes neutral vs. 3-yr expectations. Specific hurdles for cash and futures rebates are likely to be announced in June, together with a more wholistic update on fees. The analyst sees potential for listing fee increases not captured in our forecasts. In addition incremental "mark to market" volume-driven upgrades are a further risk to their rating change. UBS values ASX Limited at a price target of $50.80 (DCF-based) with a Neutral 2 rating (was Buy 2). PT = DCF x (1+WACC) - dividends. Positives to ASX Limited: (1) mark to market upgrades (2) cost delivery (3) top line strength (4) ~$50m of rebates in 07E a cushion. Key risks for ASX Limited: (1) fee/rebate hurdle resets (2) cyclical mkts (3) potential capital drag in clearing. PT goes up from $46.30 to $50.80, but investment rating declines from Buy 2 to Neutral 2 following strong price performance.

ASX Limited have a Buy 2 share trading recommendation and a price target of $46.30 from amarket analyst UBS. The analyst has observed that ASX reported (growth on pcp): (1) cash market volumes +55% (2) cash market value +40% (3) futures +36%, and (4) options +5%. Global equity volatility, quarterly contract rolls and shifting bond market expectations produced record cash and SFE volumes in the month. YTD numbers show: (1) cash market volume growth at 50% vs our 35% (2) cash market value up 31% vs our 23% (3) futures up 25% vs our 20%, and (4) options down 4% vs. our -6% forecast. Recall that earnings sensitivity is primarily to cash market value (less now to volumes given fee structure changes), and futures. Initiatives on the go: CFD's, clearing integration, further occupancy savings, technology planning, electronic conveyancing (property settlement), market microstructure improvements. ASX Limited has cost opportunities and revenue momentum at present. PT = DCF x (1+WACC) - dividends. Key positives to ASX Limited: (1) volume mark to market upgrades (2) cost delivery (3) top line strength surprising (4) ~$50m of rebates in 07E a cushion. Key risks: (1) fee rebasing/rebate hurdle resets (2) cyclical mkts (3) capital drag in clearinghouse.

ASX Limited has witnessed another record trading month as observed by market analyst Macquarie Research Equities. The analyst has given ASX Limited a reiterated Outperform recommendation. Despite increased market volatility, the ASX posted another month of strong trading activity during March. The total value traded on the ASX during the month was approximately $135b, which was another record for the month of March and is up 33% on pcp. This equates to $6.1b of value traded per day and is slightly ahead of our forecasts of $6.0b. The analyst retains their bullish view on the outlook for the stock, despite it's strong performance this year already – up 17%. If trading growth continues, further upgrades likely. The analyst have upgraded their trading forecasts on 5 March following sustained strength in levels of trading activity and now sits at the upper end of revenue forecasts relative to consensus. If trading activity continues to grow at the current rate, the analyst would expect approximately 1% to 1.5% NPAT upgrades for FY07. ASX continues to deliver strong results driven by the uplift from the SFE acquisition, a continuation of robust trading volumes and a better than expected improvement on the cost front. The analyst reiterates their outperform recommendation with ASX remaining their preferred diversified financials exposure. While at the higher end of its historic PE valuation range, the likely further upside from merger benefits, positive structural momentum from guaranteed super capital flows, growth in DMA/hedge fund activity and attractive industry position, supports the sustainability of the current PE multiple of 24.5x (compares to 27.5x for global peers or 26.0x excluding high growth markets). Momentum in trading volumes and velocity, likely further upside to SFE synergy benefits and the monopolistic franchise of trading, clearing and settlement functions support the analyst's investment thesis.

Shares analyst UBS have a look at which shares Outperform when the Australian dollar rises. The analyst: The obvious way to measure a share's currency sensitivity is to look at its EPS sensitivity. However, the shares analyst note that this ignores what else is going on when the Australian dollar (A$) is rising.