NZX posts 22% rise in annual profit as strong activity in capital markets offsets weaker Agri unit

NZX [NZX: NZX], New Zealand's stock exchange operator, posted a 22 percent rise in annual profit as strong activity in capital markets offset a weaker performance from its Agri division.

Profit increased to $12.1 million in calendar 2013, from $9.9 million in 2012, the Wellington-based company said in a statement. The result lagged First NZ Capital's $14 million profit estimate as NZX took a $2.6 million charge in 2013 to write down the value of investments in Clear Grain Exchange and NewsRoom.

New Zealand's stock exchange operator has benefited the past year from a revival in companies coming to market as the government partially privatised energy companies MightyRiverPower and Meridian Energy while privately owned businesses such as Z Energy, SLI Systems and Synlait Milk also publicly listed. Still, the boom is unlikely to be repeated in 2014 as the government has just one smaller asset, Genesis Energy, slated for listing and the remaining offerings are expected to be much smaller.

"Activity in New Zealand's capital markets in 2013 was at its highest in more than a decade which clearly has a direct and positive impact on NZX's financial performance," said chief executive Tim Bennett. "We see a good IPO pipeline with Genesis expected in the first half of the year, however the rest of the IPO pipeline will continue to be small to mid-sized businesses that need capital to grow so we will have quite a different profile to what we had last year."

Shares in NZX fell 0.8 percent to $1.26 and have advanced 2.4 percent this year.

The company didn't provide a forecast for 2014 earnings. NZX is expected to earn a profit of $15.3 million this year, according to analysts polled by Reuters ahead of today's announcement. Bennett said he expects this figure will be revised after today's result, although he declined to elaborate.

In 2013, sales rose 12 percent to $62.8 million, while expenses increased 9 percent to $37 million.

NZX's capital markets business, which accounts for about half of the company's revenue, increased sales 18 percent to $34.9 million as it benefited from 10 new listings worth $7.5 billion. Listing fees from the IPOs, which are based on market capitalisation, boosted the latest earnings and will continue to add to annual listing, trading and clearing revenues, the company said.

Still, revenue growth from capital markets will probably slow this year as the exchange doesn't expect to replicate the big listings it had in 2013, Bennett said. He declined to provide a forecast.

"We had a great year last year with some big IPOs, this year we are going to have a set of smaller IPOs, probably around the same number but they are not going to be as big as MightyRiverPower and Meridian, and we are obviously uncertain as to what is going to happen in terms of trading activity," Bennett said. "We have had a good January but there is some global economic uncertainty and we have got an election coming up which tends to slow down the pace of IPOs and therefore market activity."

Sales from annual listing fees and the sale of securities information is expected to continue to rise at a low single digit pace for 2014, Bennett said.

Revenue from agricultural information, which makes up about a quarter of total sales, slipped 2.9 percent to $12 million as it was impacted by severe drought conditions. While revenue fell 7.6 percent in the first half, it gained 1.8 percent in the second half as the sector recovered, and it is expected to return to positive revenue growth in 2014.

NZX's third largest unit, which operates fixed-price contracts for Fonterra and the Electricity Authority, boosted revenue 19 percent to $11.9 million as it benefited from a full-year of the operation of the Fonterra Shareholders' Market and its energy business gained additional revenue from development contract work for the Electricity Authority in the first half.

Revenue growth will slow in 2014 without the benefit of a new contract, Bennett said.

The company's fund management unit, which increased revenue 8.8 percent to $2.5 million in 2013, is expected to have similar levels of growth this year, he said.

In 2013, NZX wrote down the value of its Australian Clear Grain Exchange business by $2.4 million to $4.7 million following a disappointing trading year with revenues down 22 percent. NZX also wrote down the value of Newsroom by $200,000, ahead of its sale last month.

NZX will pay a dividend of 1.6 cents a share on March 21, taking total dividends for 2013 to 5.6 cents. The company expects to pay a 2014 dividend of 6 cents as it changes to a new policy for 2015 based on paying 80 percent of free cash flow.

(BusinessDesk)