Daily ShareChat: NZX

By Jenny Ruth

Wednesday 26th May 2010

The multitude of one-off gains and costs in NZX's latest result "with inadequate disclosures limits conviction in forecast," says McDouall Stuart.

NZX reported a 3% decline to $2.9 million in first-quarter earnings as acquisitions pushed up operating costs more than revenue

"The disappointment in earnings of traditional activities and some recent purchases foster conservatism," the broker says. "Investors are likely to wait for evidence of the company's re-shaping to flow to earnings before the share price will advance further."

Some recent indicators within the company's operations suggest that revenue improvement is likely in areas which had been static, it says.

NZX's traditional revenues have been relatively stable with new activities, some still in concept stage, doubling revenue from market information in two years.

Further diversification will emerge with the acquisition of Melbourne-based Clear Group which offers entry into trading of grain and the ability to use its technology to develop further agri-market infrastructure, the broker says. Dairy futures trading is likely to resume shortly in New Zealand.

NZX is over-capitalised with $17 million of net cash which will increase rapidly over the next few years in the absence of further acquisitions and/or capital management initiatives.

"Any improvement in revenue, coupled with the continued focus on cost management, should enable operating profit to improve going forward."

BROKER CALL: buy.

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