What: Stock market operator ASX Ltd (ASX: ASX) this morning posted a full year net profit up 10% to $383.2 million on revenues of $658.3 million. The largest contributor to revenue growth was the Listings and Issuer Services business after a big year of IPO activity featuring 107 new fee-generating listings.
The business also announced a fully franked full year dividend totaling 178.1 cents per share, up 4.6% on the prior year.
Now what: The bourse's main revenue streams come from listing services, trading, clearing, settlement and derivative administration fees. Despite an ebullient FY 2014 for both equity and capital market activity the group's shares are only up around 3.6% over the past year. A disappointing return given the tailwinds and limited competition for business share.
Shareholders will be expecting the group to capitalise on its defensive revenue streams to grow its dividend payments on a consistent basis into the future. The group's challenge is to remain on top of technological innovations, while maintaining its dominant market share.
What of the outlook? The company has a strong balance sheet and continued operating leverage in that it should be able to grow revenues faster than a relatively manageable cost base, which mainly involves staff and technology development expenses.
The group said the first few weeks of FY 2015 had seen moderate growth in market activity. The ASX has traditionally enjoyed a monopoly on earning fees from capital market activity in Australia, but it does now have a competitor in rival bourse Chi-X. If Chi-X attempts to win market share through offering lower cost services this could place pressure on the ASX's future profit growth prospects.
However, for defensively minded investors after a fully franked income stream the ASX remains a solid opportunity given its entrenched advantages, recurring revenue streams, and technology-based growth opportunities.
