Release Date: February 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

ASX Ltd (ASXFF) delivered record operating revenue for the first half, up 5.9% compared to the previous year. Underlying net profit after tax increased by 10.1%, driven by growth in net interest income. The company declared a fully franked interim dividend of $111.02 per share, reflecting a payout ratio of 85% of underlying impacts. ASX Ltd (ASXFF) made significant progress in its technology modernization program, with several project rollouts planned for the remainder of FY25. The company's balance sheet remains strong, with access to various funding sources, including a $300 million corporate debt facility and a $275 million corporate bond.

Negative Points

Total expenses for the period were $220.3 million, reflecting a 0.2% decrease, but future expense growth is expected to be between 6% and 9%. The company incurred a significant item related to an onerous lease provision, impacting statutory net profit after tax. Electricity derivatives trading activity was down due to lower volatility in electricity prices, affecting revenue. ASX Ltd (ASXFF) faces regulatory challenges, including an ASIC investigation into a chess batch settlement incident. The company anticipates higher expenses in the second half of FY25 due to increased equipment costs and depreciation and amortization.

Q & A Highlights

Warning! GuruFocus has detected 7 Warning Signs with ASXFF.

Q: Can you explain the discrepancy between the 20% increase in futures volumes and the 10.5% increase in revenues? A: Helen Lofthouse, CEO: The slower revenue growth is due to a change in product mix. The rates products, which have lower price points, saw strong growth. This affected the average fee due to product and cost mix, as well as rebates.

Q: How should shareholders evaluate cost growth given the significant increase in CapEx and other expenses? A: Andrew Tobin, CFO: The onerous lease provision is a one-off item due to early lease termination. Despite this, we maintained flat cost growth compared to last year, focusing on workforce optimization and strategic procurement.

Q: Is the decline in electricity derivatives revenue due to seasonality or other factors? A: Helen Lofthouse, CEO: The decline is primarily due to lower volatility in electricity prices, though there is some seasonality. We expect the electricity market to grow due to ongoing electrification.

Q: With the first half costs being lower, are you expecting to hit the top or bottom end of your guidance for the second half? A: Andrew Tobin, CFO: We are comfortable with our guidance range of 6-9% expense growth. Known factors like depreciation and technology investments will increase costs in the second half, but we are not refining guidance yet.

Story Continues

Q: Can you discuss the revenue opportunity for the new debt market activity services? A: Helen Lofthouse, CEO: While we have forecasts, we will share more as they become material. The service launches in the second half, but significant revenue impact is not expected immediately.

Q: Are there any headwinds from potential policy changes in clearing and settlement services? A: Helen Lofthouse, CEO: The pricing policy for cash equities clearing and settlement services is being formalized. We don't expect material revenue impact, but it will continue to constrain pricing flexibility.

Q: Can you elaborate on the spread increase from 10 to 15 basis points for participant balances? A: Andrew Tobin, CFO: The increase is due to emerging opportunities as interest rates and curves move. The spread is not locked in and depends on market conditions.

Q: How is ASX positioned in terms of funding for its capital profile? A: Andrew Tobin, CFO: We have significant funding flexibility with retained earnings, a $275 million corporate bond, a $300 million undrawn bank facility, and a $60 million equipment financing lease.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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