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First NZ lifts NZX target price after AGM, waiting for outcome of strategy review

Monday 3rd July 2017

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First NZ Capital nudged up its 12-month target price on NZX on a small upgrade to its earnings forecasts after last week's annual meeting and is closely watching for the outcome of the stock exchange operator's review of its businesses. 

On Friday, NZX affirmed 2017 guidance for earnings before interest, tax, depreciation and amortisation (ebitda) of $27 million-to-$30 million after ebitda jumped 30 percent in the first five months of the year. Wellington-based NZX noted if the current relatively subdued capital raising and securities trading conditions persist, it expects earnings to be in the middle of guidance but if conditions improve, it would deliver a result at the upper end. 

FNZC retained a 'neutral' rating on the stock, but lifted its target price to $1.15 from $1.13 after the meeting. The shares were recently up 0.9 percent at $1.13.

The brokerage and research house had been projecting ebitda of $28.8 million in calendar 2017, which it dubbed conservative given significant "non-recurring" costs in FY16, said research analyst Greg Main in a note.  It has now raised that forecast by 2 percent and still sees the company's guidance as conservative.  

"NZX's ebitda guidance appears conservative but also recognised the impact of capital raising and trading volumes on earnings and it not wanting to disappoint the market," said Main. 

While the NZX pointed to an 18 percent decline in operating costs in the five months to May, Main said that was largely driven by the divestment of the Agri businesses and because NZX incurred most of the Ralec litigation costs in the second half of last year.

This year's first half result will show whether NZX has been making any cost savings to its core business. "We suspect it may be a case of minor cost savings offset by some activity related cost growth," Main said.

NZX is reviewing its overall strategy and Main said that while "we expect NZX will evaluate its capital structure as part of this strategic review," the brokerage is "reluctant to assume too much in the way of possible growth and cost savings until we get great clarity." 

Chief executive Mark Peterson - who took the helm at the start of the year - told shareholders in Wellington last week that the strategic review "will determine the shape of our business and influence the strategies we will adopt in growing the business and New Zealand’s capital markets for the long-term." The results are expected in November. 


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