Security price: $39.64
Industry: Finance
Forecast distribution: $1.86 per share fully franked
Australian investors have the good fortune that they can invest in their own stock exchange: the public listing of the market often offers useful indicators to the overall health of listed securities.
Shares in ASX Ltd have drifted lower over the past year or so. That lacklustre performance tracks the broader Australian sharemarket. It might also reflect the view of investors that the company has a relatively modest growth outlook.
Yet the company remains a very stable stock, with little debt and strong cashflows. When combined with a solid dividend yield, it continues to be a good option for income investors.
Besides running the stockmarket, the ASX offers a broad and complex suite of financial services products focused on the issuance, trading, clearing and settlement of different types of securities, derivatives and asset classes.
While ASX has a relatively stable business, it is responding to market changes and realigning its operations, including adjusting fee structures, investing in new infrastructure and creating new products and services.
ASX obviously suffered from a slump in financial activity in the post-GFC period when IPOs dried up. But activity has been returning to health, which helped it report solid first-half growth in profits and revenues.
Early last month ASX also posted a solid result for the nine months to March 31, with operating revenues up 5.8 per cent and underlying after tax profit rising 4.5 per cent to $299.8 million. Total capital raised in the nine months was up 13 per cent to $50.2 billion, and average daily trade on the ASX rose 12 per cent.
Despite these moves, I don’t expect the ASX to post spectacular sales and profit growth. But the company has a strong balance sheet with significant liquidity, no debt and net assets of $3.75bn. It also has a solid dividend yield.
The ASX paid an interim dividend of 92.3c per share fully franked. The total payout for the full year is forecast to be $1.86 per share, giving a solid yield of 4.7 per cent fully franked. The dividend is forecast to rise to $1.95 in 2016, a yield of 4.9 per cent.
At $39.90, ASX is trading above our forecast valuation, but the company maintains a strong market position and its yield will underpin its share price — an ­attractive option for income-seeking investors.