ASX Limited (ASX)

By Jason Fittler

ASX operates Australia's primary national exchanges. It also provides market data services and investor education courses. ASX merged with SFE Corporation, Australia's major exchange for commodity and non-equity derivatives, in July 2006.

An increase in competition has severely dented the market shares of global exchanges, the London Stock Exchange’s market share has fallen from 100% three years ago to only 70% today. In addition, the newcomers with aggressive entry strategies have affected fee structures, further hurting revenues.

In contrast, Asia Pacific exchanges are benefiting from stronger regional growth, higher levels of regulation, and ownership of clearing and settlement facilities.

Asian trading volumes are benefiting from a rapid return of confidence, while derivatives volumes are also recovering as hedge funds regain their appetite. We believe ASX will benefit from these trends by lifting the rebate thresholds from financial year 2001.

Volumes and values of cash trading are now above the levels of a year ago and growth looks to be accelerating as confidence returns to the markets. While the rebates are likely to hinder the upside in 2010, simple increases to the rebate thresholds from 2011 could provide considerable upside to earnings, in our view.

We view ASX as a high-quality company and believe earnings will expand gradually, they have forecast a 5.21% fully franked dividend for 2010 and expect this to grow to 6.55% full franked by 2012 on top of this we have raised our target price of A$40.00 14% above the current level.

This is a good long term portfolio stock.

If you would like more information on ASX Limited (ASX) please call me on 07 4771 4577.