ASX Ltd trims dividend as results disappoint

The market operator is cutting jobs, consultants and assets as it prioritises its regulatory commitments and technology modernisation program.

ASX Limited CEO Helen Loftho in Sydney. Picture: John Feder/The Australian.

ASX Ltd is cutting jobs, consultants and assets as it prioritises its regulatory commitments and technology modernisation program after its first half results were marred by a cost blowout.

The exchange operator began a “targeted restructure and prioritisation process” last week to cut its non-project related headcount by 3 per cent to save an estimated $11m in operating expenses.

Net profit for the half year to December rose to $230.5m versus $73.7m for the previous corresponding period but underlying profit fell 7.8 per cent to $230.5m.

Underlying profit was 5 per cent below Bloomberg’s consensus estimate of $242.8m. Operating expenses rose 29 per cent to $202m while operating revenue rose 2.4 per cent to $511.7m.

The interim dividend was cut to $1.012 per share versus $1.06 expected.

ASX shares reacted negatively, dropping 4 per cent to a two-week low of $65.12 after rising 27 per cent over the past four months amid a strong rise in the overall share market.

Capital expenditure guidance for the 2024 financial year remained at $110m to $140m and expense growth guidance stayed at 12-15 per cent rise on year, implying a sharp fall in the second half.

Expense growth is expected to drop to about 2 per cent in the second half as one-off regulatory costs recede and ASX starts to realise the benefits of its business rationalisation actions.

ASX flagged progress on tightening its procurement protocols and optimising its workforce by using less consultants. Several expense management initiatives are underway, to reduce the use of contractors and consultants, and optimising the group’s procurement strategy.

It is also exploring options to sell its 4.2 per cent stake in Digital Asset valued at $14.2m, after its decision to use a product-based solution for its CHESS replacement project.

While still seeing e-conveyancing as an attractive market, ASX has “reshaped” its cost base on its Sympli joint venture after the national conveyancing council said it required readiness for interoperability for key registry instruments by December 31, 2025.

“These actions demonstrate that we are making active choices to manage our equity portfolio in a disciplined way,” chief executive Helen Lofthouse said.

“All of these actions will create a more sustainable expense base and give us the foundation for growth as we move towards the next horizon of our strategy.”

Ms Lofthouse said ASX has a business rationalisation program underway to lower its cost growth rate from the current level of 12-15 per cent in its 2025 financial year.

“While ASX’s first half net profit missed expectations, this largely reflects a greater first-half cost skew with full-year cost growth guidance unchanged,” said Jarden Securities analyst Kieren Chidgey.

“However, with further clarity on costs into the 2025 financial year now not due until its Investor Forum in June and its 12 month forward price-to-earnings ratio sitting in line with its trailing 10-year average, we retain a neutral rating.”

UBS analyst Scott Russell said the savings from the technology staff restructure were just 2.5 per cent of ASX’s cost base. “All up, not enough here to justify the recent stock rally,” he said.

However, Ms Lofthouse said the ASX has capital management flexibility to support its investments. It plans to issue a $200m to $300m corporate bond by June, subject to market conditions.

She said the first half results showed a “resilient” performance in a “challenging environment” for cash equities and initial public offers.

“While cash market trading activity remains subdued, easing inflation pressures, coupled with growing confidence around the peak for interest rates, should see a return to volume growth, subject to the impact of geopolitical tensions,” she said.

“An improvement in these factors would also be expected to drive increased activity in the IPO market as there remains a solid pipeline of entities looking to list on ASX.”

She noted strong activity in dual listings, with entities such as Newmont and Capstone providing Australian investors with the ability to invest locally in large, quality global companies.

“ASX has really strong positions in a number of markets and the diversity of our business portfolio really means that we’re able to deliver strong performance through different cycles,” she said.

“In this case it was really the derivatives products and also our data services that lifted revenue.”

“When you’ve when you’ve got interest rates rising significantly, it does create a really challenging environment for equities, although in terms of value, the market does keep countering that.

“But I think as we’re getting to the point where people are feeling more confident about peak interest rate. My hope is that will allow people to get more comfortable about the equity market.

“The only caveat is that so much to geopolitical tension at the moment and it’s hard to predict the impact. It can go both ways - markets are incredibly important to people to manage their risks around those kinds of things.”

She also said the group remains focused on its return on equity, expecting it to “move back into the medium term target range as the total expense growth rate moderates.”

“Our people have embraced our new ‘One ASX’ values through this period and it gives me confidence that we are embedding a culture that is customer centric, outcomes focused and ready to prioritise the allocation of the right resources to the most important streams of work.”

ASX is moving ahead with the new solution design for its CHESS project that was announced in November. Ms Lofthouse said it has been well received by the industry.

A consultation paper on the clearing component is due in mid-March. Recommendations from an external review of ASX’s CHESS replacement plans are due to be implemented by June.