By Alastair Sharp
TORONTO Feb 5 TMX Group Ltd, the owner
of Canada's main stock exchange, on Wednesday reported a
fourth-quarter profit well above analysts' estimates as trading
activity showed early signs of recovery.
TMX, which owns the Toronto Stock Exchange, has struggled to
offset the cyclical swing away from commodities as resource
companies play a major role in issuance in Canada.
The company said it had benefited from lower financing costs
after restructuring its long-term debt and that the rising U.S.
dollar had boosted revenue from greenback-denominated accounts.
A group of Canadian financial institutions bought TMX in
September 2012 and combined it with the smaller Alpha stock
exchange and the trading clearinghouse Canadian Depository for
Analysts praised the results, the first to offer comparable
year-earlier figures after the deals closed, but expressed
caution about the challenging state of Canadian capital markets.
"Robust free cash flow and a high degree of operating
leverage likely position TMX as an attractive play on a capital
markets recovery," Scotiabank analyst Phil Hardie wrote in a
note, adding that the trading environment would likely remain
Net profit attributable to TMX's equity holders rose 27
percent to C$41.4 million ($37.4 million), or 77 Canadian cents
per share, from C$32.6 million, or 61 Canadian cents per share,
a year earlier.
Excluding acquisition and integration costs, TMX earned 96
Canadian cents per share. Analysts on average had expected 85
Canadian cents, according to Thomson Reuters I/B/E/S.
Revenue slipped to C$180.7 million from C$181.1 million but
beat analysts' estimates of C$174 million.
TMX said it expected declines of about C$17.9 million in
revenue and C$9.9 million in operating income this year after
losing the contract to administer SEDAR, Canada's equivalent of
the U.S. Securities and Exchange Commission's EDGAR, and other
Securities regulators replaced TMX with CGI Group,
which itself recently lost a contract to manage the registration
system for the new U.S. healthcare program initiated by
President Barack Obama.
TMX reported lower revenue from listing fees, highlighting
the fragile state of the market for exchange services. Fewer
companies joined the TMX's various exchanges, and existing
listers paid less based on their own declining market
Along with the TSX, the company also owns the Montreal
derivatives exchange and the small-cap TSX Venture Exchange,
where listings are heavily weighted toward the resource sector.
Shares of TMX were up 1 percent at C$50.38 in early trading
on the Toronto Stock Exchange. At Tuesday's close, the stock had
fallen 7 percent over the past year, compared with a 12 percent
rise in the broader S&P/TSX financial index.
"The shares are fully valued and ... the capital markets
environment remains challenging," RBC Capital Markets analyst
Geoffrey Kwan wrote in a note.
TMX is bracing for the arrival of Aequitas Innovations Inc,
an upstart competitor seeking to win over institutional
investors with an aggressive stance against high-frequency
Asked on a conference call if TMX would consider a similar
offering, executives did not give details of their plans. They
said, however, that high-frequency trading accounted for 15
percent to 20 percent of all TMX trades and had narrowed spreads
and added liquidity.
Aequitas is backed by Royal Bank of Canada, Barclays
Plc, pension fund OMERS Capital Markets, mutual fund
managers CI Financial Corp and IGM Financial Inc
, telecom company BCE Inc and others.
TMX is controlled by a consortium of Canadian banks and
other financial institutions that thwarted a takeover bid by
London Stock Exchange Group.
RBC, Canada's biggest lender, was one of the nation's few
banks not involved in the consortium, as it had advised the
London Stock Exchange on its bid.