Exchange Operator TMX Group Surges to High on Record Quarter

  • Dividend hike on the table in 2nd half, CEO says in interview
  • Benchmark S&P/TSX one of top-performing developed markets

TMX Group Ltd., the owner of the Toronto Stock Exchange, surged to a record after posting greater-than-estimated earnings and its strongest-ever quarterly sales thanks to efforts to streamline its business as well as increased equity trading volume.

TMX jumped 4.1 percent to C$61.09 at 1:54 p.m. in Toronto trading, which would be the highest closing level since the company was created in 2012 after it was bought by a consortium of Canadian banks and pension funds. It was the biggest one-day gain in five months.

TMX Group Chief Executive Officer Lou Eccleston opened the door to a potential dividend increase now that the company’s debt is under control.

“One of the levers in total shareholder return is returning capital to the investor, and that now becomes something we can look at potentially in the back half of the year,” Eccleston said in a Bloomberg TV Canada interview in Toronto. “We did want to get that leverage ratio below 3 and we’re finally getting there.”

Since 2012, TMX has paid a quarterly dividend of 40 Canadian cents, with Bloomberg forecasts projecting an increase to 44 cents in November. The dividend yield is 2.6 percent.

TMX shares have rallied 71 percent this year, just behind a 76 percent gain for BM&FBovespa SA for the top spot among rivals in the Bloomberg Intelligence Global Security and Commodity Exchanges Valuation Peers. It’s a strong turnaround for the stock after tumbling 29 percent in 2015 amid the collapse in crude and metals prices.

“We’re seeing encouraging signs in the performance of our markets and our operating results,” Eccleston said in an earlier conference call Thursday discussing the company’s quarterly results. “Sustained volatility pushed volumes higher across our markets in the first half of the year and especially in the second quarter. The demand for Canadian assets continues to grow.”

Record Revenue

TMX reported adjusted earnings of C$1.23 a share in the second quarter, besting the highest analyst projection of C$1.07 a share. Record revenue of C$194.6 million ($149.5 million) in the quarter topped the average analyst estimate of C$189.7 million. During the quarter, there was a reduction in costs related to job cuts and the sale of its Equicom investor-relations unit, the company said in a statement.

“Our success in managing costs in the second quarter is indicative of the efficiencies we are looking to drive throughout the organization,” Chief Financial Officer John McKenzie said in a statement. “We expect to incur additional strategic re-alignment expenses for the balance of 2016.”

TMX has benefited from the rebound in Canadian equities this year, fueled by a rally in global commodities prices from gold to crude and copper. The resource-heavy benchmark S&P/TSX Composite Index is one of the top performing developed markets in the world with a nearly 12 percent gain, trailing only New Zealand. This is a far cry from last year, when the S&P/TSX slumped 11 percent, its worst showing since the 2008 financial crisis.

Trading volume across all TMX marketplaces is up 9.2 percent this year to more than 77.5 billion shares as of June, compared with year-ago levels, according to company data. Volatility has enveloped global markets amid uncertainty over the pace of Federal Reserve interest-rate hikes and Britain’s unexpected vote to leave the European Union.

Eccleston has also been busy reshaping TMX, streamlining the business in search of cost savings and bringing in fresh executives.

TMX on Wednesday named Glenn Goucher, president of the Canadian Derivatives Clearing Corp., to the same position at the Canadian Depository for Securities Ltd., consolidating the two clearing houses as a first phase towards simplifying operations across the business, the company said.

TMX in June named McKenzie as its new CFO. McKenzie was most recently president of CDS.

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