NZX's Bennett sees strong debt pipeline in 2016 after 2015 revenue buoyed by funds management

Wednesday 24th February 2016

NZX's chief executive Tim Bennett sees a strong pipeline of debt listings in 2016, and predicts funds management will diversify as KiwiSaver balances keep growing, although he wouldn't be drawn on potential initial public offerings in the year ahead.

NZX lifted annual profit 82 percent in 2015 as the one-off gain from the sale of its Link Market Services share registry division made up for flat operating earnings. Revenue got a boost from the stock market operator's expanded funds management business.

Net profit rose to $23.9 million in calendar 2015, from $13.1 million a year earlier, the Wellington-based exchange said. That included an $11.8 million gain from the sale of Link Market Services. Earnings before interest, tax, depreciation and amortisation were unchanged at $24.6 million, on a 12 percent rise in revenue to $73.2 million. Operating expenses increased 20 percent to $48.6 million.

The company expects annual ebitda to be in the range of $22.5 million to $26.5 million in 2016, subject to market conditions and assuming no acquisitions or divestments. The exchange said it sees a relatively wide range of possible revenue outcomes in 2016, with the year off to a volatile start.

In a briefing this morning, Bennett said that while it would be remiss to think the local economy wouldn't be impacted by a sharp slowdown in China, the market's lack of exposure to resources and commodities would lessen the fallbacks in valuation seen globally since the beginning of the year.

"We've got a great group of listed companies, relatively high yields, and an economic environment which is much stronger than most developed markets," he said. "Over the last couple of months we have seen quite a lot of renewed offshore investor interest in New Zealand, but the combination of those two things makes it quite difficult to predict what might happen over the next 12 months."

NZX has been diversifying from its capital markets core business by expanding into funds management, buying SuperLife in December 2014 as part of a plan to roll out new ETFs which it could then offer as a low-cost KiwiSaver option. Sales in NZX's funds management business more than tripled to $10 million, reflecting a boost in earnings from the acquisition.

SuperLife contributed $6.4 million in revenue and $1.7 million in net profit for the year, NZX said. Its funds under management grew 14 percent in the year, with 22 percent growth in its KiwiSaver funds.

Based on Australia's experience with compulsory superannuation, Bennett said the local market is "at the start of a 10 to 15 year growth journey." The Australian fund management industry became fragmented as individual's balances grew to 'new car' levels of $50,000 to $100,000, and savers became more conscious of how their money is managed.

"Over the next three- to five-year timeframe, we'd expect to see what we saw in Australia," he said. "I would expect to see the development of much more focused or boutique fund managers in New Zealand. That will be very good for our capital markets, because it will provide some capital into smaller, high-growth businesses. We are continuing to focus on making sure there's capital available for those businesses to grow."

Bennett said NZX's SuperLife product was a good option for people wanting a more active management of their savings.

NZX also bought investment platform Apteryx in August for an initial consideration of $1.5 million and will make an additional payment of up to $2.5 million depending on Apteryx's performance by September this year. Apteryx contributed revenue of $700,000 and a loss of $200,000 to the group's annual results.

Revenue in its capital markets division rose 5 percent business to $39.3 million, with a significant increase in secondary capital raising activity driven by dual-listed banks, NZX said. Initial public offerings dropped away in 2015, with just four new listings.

Bennett said he wouldn't comment on whether 2016 would see more IPOs than last year due to recent volatility in equity markets, but doesn't expect to see the same level of secondary capital raising this year.

Listed debt issuance grew 374 percent to $8.1 billion, boosted by the Local Government Funding Agency listing its six series of bonds worth a cumulative $5.6 billion.

"We see a good pipeline of debt listing this year," Bennett said. "There's obviously a lot of retail investor demand for debt, and we're starting to see the benefits of debt listing picking up more liquidity in that market, and we're starting to see some more offshore interest."

Bennett said the company's $8 million growth in operating expenses was driven by $5 million in acquisition costs for SuperLife and Apteryx and $2.1 million from fees associated with its Ralec litigation. It is set to go to the High Court in May this year, and the company anticipates a similar level of litigation costs this year.

The shares fell 1 percent to trade at $1 and are down 7.5 percent this year.

BusinessDesk.co.nz

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