UPDATE 1-TMX profit above forecast but Canada market volume weak

Thu Aug 1, 2013 11:25am EDT

* Operating income slips, company looks to cut costs

* Shares up 1.6 percent

By Alastair Sharp

TORONTO, Aug 1 (Reuters) - Shares in TMX Group Ltd, owner of Canada's biggest stock exchange, gained on Thursday after the company reported a better-than-expected second-quarter profit, helped by the sale of a fixed income service but limited by limp trading volumes.

The Toronto Stock Exchange operator's net income was C$25.5 million ($24.8 million), or 47 Canadian cents a share, on revenue of C$182.3 million.

Comparing TMX's performance with that of the year-before quarter is complicated because a group of Canadian financial institutions bought TMX last September and combined it with the smaller Alpha stock exchange and the Canadian Depository for Securities Ltd, a trading clearinghouse.

The company reported adjusted earnings of 89 Canadian cents a share, excluding charges related to the sale of a price index, an increase in deferred income tax liabilities, and charges related to the amortization of intangibles

In a deal that closed in April, TMX sold its PC-Bond fixed-income pricing service for C$155.1 million in cash and shares.

The company's second-quarter adjusted earnings of 74 Canadian cents a share topped analysts' expectations of 69 Canadian cents, according to Thomson Reuters I/B/E/S, which had already adjusted its estimate to include a charge of 15 Canadian cents related to the amortization of intangibles.

When TMX's results in the year-before quarter are combined with those of Alpha and the clearinghouse, the 2013 quarter shows a 21 percent drop in operating income and a 9 percent jump in revenue, which was C$167.5 million a year earlier.

TMX said it was looking at ways to cut costs, but would not skimp on road shows to encourage companies to list on TMX exchanges or on a planned technology upgrade.

"It is tempting when markets are down to step back from these business development efforts to save money, but in our view, this is short-term thinking," Tom Kloet, the company's chief executive, told investors on a conference call.

TMX also owns the Montreal derivatives exchanges and the small-cap TSX Venture Exchange, where listings are heavily weighted toward the resource sector.

The company has struggled to offset the cyclical swing away from commodities and will soon face renewed competition as a new stock exchange, Aequitas, readies to enter the fray.

Meanwhile, the tough economic backdrop has also weighed on trading volumes and new issues on the Toronto Stock Exchange and the smaller TMX bourses.

Executives said that higher listing-fee revenues had helped produce a rise in overall revenue from the previous quarter.

TMX began transferring its trading platforms onto a much faster technology earlier this year in a move that might attract more high-frequency traders, who use algorithmic programs to buy and sell stocks. It expects the move to be finished by the middle of next year.

TMX shares were 1.7 percent higher at C$45.95 at mid-morning on Thursday on the Toronto Stock Exchange.

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