Many investors will be attracted to the defensive qualities and steady income stream of ASX Ltd (ASX: ASX) as the operator of the nation's premier stock exchange.
The group's monopoly like status has been challenged by smaller rival Chi-X recently, which now effectively competes as an equities exchange. Chi-X can reportedly offer cheaper fees to brokers and has been involved in an increasingly bitter battle with ASX Ltd.
Part of the reason for the public relations between the two is because ASX Ltd's monopoly on providing lucrative clearing and settlement services is currently under regulatory review with a decision expected soon. Chi-X argues that ASX Ltd currently earns an uncompetitive earnings margin on clearing revenues of 76.6% and that it should be able to offer a cost-comptitive alternative.
In response the ASX and its chief executive have railed against the idea of further splitting the market and suggested that Australia does not have the total trading volumes to support more fragmentation.
Notably, a giant market like the U.S. can support multiple exchanges and settlement systems due to the eye-watering volumes, while Australia is having problems with larger companies either dual-listing or delisting.
In this excellent article Mike King notes how Twenty First Century Fox recently delisted and suggests Westfield Corp Ltd (ASX: WFD) may well do so in the future.
Asian telco-giant Singtel as the operator of the Optus mobile network also recently delisted its chess depositary investments from the ASX and directly blamed a lack of volume for the decision.
Evidently ASX Ltd has some challenges to meet but it remains a reliable growth stock with leverage to new technologies and steadily increasing volumes as more cash flows into the market over time. Tailwinds include the huge cash flows from Australia's compulsory superannuation system, as much of this cash will eventually flow through the exchange in one way or another.
The business retains relatively low capital expenditure requirements given its technology focus and a high percentage of the strong cash flows are paid out in dividends.
Indeed the stock tends to consistently yield in the range of 4%-5% and given the potential for steady organic growth it remains a moderately attractive long-term investment.
Although, the current price of $43.18 on around 21x trailing earnings looks fully valued for now.
Risks remains around its leverage to financial markets, competition, or operating blunders that damage its reputation, although as equity investments go the risks are relatively low and this is another advantage.
