TMX Group Profit Tops Estimates as Listing Fee Revenue Rises

TMX Group Ltd., owner of the Toronto Stock Exchange, reported second-quarter profit that topped analysts’ estimates after higher listing fees boosted revenue.

TMX’s net income was C$25.5 million ($24.8 million), or 47 cents a share, the Toronto-based company said today in a statement. Revenue was C$182.3 million. The numbers from a year earlier aren’t strictly comparable because a new company was formed by the sale of the exchange owner to a group of banks and pension funds.

TMX reported profit of 89 Canadian cents a share excluding some items, beating the 83-cent average estimate of analysts surveyed by Bloomberg. Shares of the exchange rose 3.7 percent to C$46.89 at 4 p.m. in Toronto, a seven-week high. The stock has lost 7.6 percent this year.

“The Montreal Exchange had quite a solid quarter, which helped offset some of the year-over-year volume declines in our cash markets,” Tom Kloet, chief executive officer with TMX, said in a conference call this morning. “This clearly underscores the benefits of the diversified nature of TMX Group.”

Options trading in the Montreal Exchange rose 2 percent compared with the same period last year, Kloet said.

Combined trading volume across the Toronto Stock Exchange, Venture exchange, Alpha and select fell 10 percent in the quarter compared with year ago figures, Kloet said. Financing raised was flat in the second quarter, compared with 2012, he said.

“Our equities business, particularly equities financing, continued to feel the effects of ongoing market weakness due to the current macroeconomic cycle,” Kloet said.

Rising Revenue

Michael Ptasznik, chief financial officer, said improvement in revenue “reflects an increase in initial and additional listing fee revenue” and contributions from buying Equity Financial Holdings Inc.’s transfer agency and corporate trust services business. The C$64 million deal closed in April.

Trading volume for TMX’s Boston Options Exchange slumped 40 percent in the quarter due to a decrease in market activity and shrinking market share, Kloet said.

“It’s a highly competitive market,” Kloet said. The company is considering various pricing strategies.

Shubha Khan, analyst with National Bank Financial, lowered his 2013 earnings estimate for TMX to C$2.93 from C$3.15 and cut his rating for the stock to underperform, the equivalent of sell, from sector perform, the equivalent of a hold, in a July 18 note to clients.

Rival Exchange

The company has one buy, four holds and five sell ratings, according to analyst recommendations compiled by Bloomberg. The one-year price target is C$48, implying a 2.4 percent increase from the current level.

TMX was acquired last September by a group of Canadian banks and pension funds as part of a C$3.73 billion takeover that combined its competitor, Alpha Group, and the Canadian Depository for Securities Ltd. clearinghouse.

Royal Bank of Canada, the nation’s largest lender, along with partners including Barclays Plc and Toronto investment firm CI Financial Corp., announced in June plans to build a new exchange through Aequitas Innovations Inc., targeted at investors concerned with the rise of high-frequency trading.

“The Toronto Stock Exchange gets the tail-end effects of economic conditions, ease of financing and appetite for new issues, so there are lots of events that are beyond their control,” Thomas Caldwell, chief executive officer with Caldwell Securities Ltd, said in a July 24 interview. The firm manages about $1 billion, including shares of TMX. “The uncontrollables are becoming more positive and that will help the exchange and stock price.”

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