The ASX Ltd (ASX: ASX) share price is currently trading at $80.48, more than 30% higher than a year ago after wracking up impressive returns over 2019. The stock exchange operator has been on a virtually uninterrupted trajectory since the GFC, aided by the bull market in equities.
Is the ASX expensive?
According to the Australian Financial Review, a study by researchers at Citi has ranked the ASX as the third most richly valued major exchange in the world. Coming in behind the London Stock Exchange (LSE) and the Hong Kong Exchanges and Clearing (HKEX), the ASX, "seems expensive," according to a Citi analyst, who gave the share a sell recommendation and a $70 price target. Goldman Sachs also has a sell rating on ASX with a 12-month price target of $66.88.
Other international exchanges also saw precipitous rises in share prices in 2019 – the LSE was up 78%, the NASDAQ up 36%, the Deutsche Borse 29% and the Singapore Exchange 19%. According to Citi, The LSE had the highest PE multiple, however, this was partially justified given the exchange had the highest expected growth profile over 2018-21. The ASX is currently trading on a PE multiple above 31.
In FY19 the ASX reported revenue of $863.8 million, up 6.5% on a like for like accounting basis. Expenses increased by 9.9% to $214.8 million due to investing for "resilience and growth". Earnings before interest tax depreciation and amortization (EBITDA) were $649 million, an increase of 5.5% on a like for like accounting basis. Underlying net profit after tax (NPAT) increased by 7.7% to $492 million. Earnings per share increased by 10.5% on a statutory basis to 254.1 cents per share. Dividends of 228.7 cents per share were paid, and a special dividend of 129.1 cents per share, 100% franked, was paid from the sale of IRESS.
On Tuesday the ASX released its monthly activity report for December which showed the average daily number of trades in calendar year 2019 was 27% higher than in calendar year 2018. An average value of $4.8 billion was traded daily in 2019, 9% higher than 2018. It was a poor year for IPOs, however, with 94 new entities listed and $66.3 billion in capital raised compared to 132 entities and $98.9 billion in capital raised the previous year.
Foolish takeaway
The ASX delivered strong results in FY19 which were matched by the strength in the ASX Ltd share price. Based on broker research, it appears ASX Ltd shares are fully valued currently and may even be overvalued.
