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NZX reiterated at 'outperform' by First NZ

Clear Grain exit to lift 2017, 2018 earnings

Jonathan Underhill
Mon, 30 Jan 2017

NZX shares were reiterated as 'outperform' by brokerage First NZ Capital, which raised its earnings forecasts for 2017 and 2018 primarily to reflect the market operator's sale of the unprofitable Clear Grain Exchange.

First NZ analyst Greg Main raised his target price for NZX to $1.17 from $1.12 in the report, titled Robust 4Q16 revenue and FY17 earnings uplift.

"We have increased our FY17 and FY18 ebitda forecasts by 3 percent each, primarily reflecting the divestiture of the loss-making grain trading business," Main said in his report. "We retain our positive investment view of NZX and believe its strong business franchise, projected earnings growth and a potential increase in its dividend payout should be supportive for its share price."

Last November, NZX announced the sale of Clear to its manager Nathan Cattle, for an undisclosed sum, after it incurred millions in legal bills in its fight with Ralec, Clear's former owners. The sales was part of an overhaul to its agri division, which has weighed on group earnings. NZX previously sold the Country-Wide and Dairy Exporter magazines to acting agri business chief Tony Leggett, leaving its agricultural data business, Farmers Weekly publication and the Agri HQ Pulse news service.

NZX shares last traded at $1.10 and have gained 5.7 percent in the past 12 months, lagging behind the S&P/NZX 50 Index's 15 percent gain. In the past five years the stock has declined 1.6 percent to the index's gain of 114 percent.

Main said NZX's fourth-quarter operating metrics suggest revenue remained strong in the final three months of 2016, on robust capital raising activity and "a bounce-back in agri-advertising levels following a weak 3Q16." That should offset any impact from the sale of the agri-magazines and grain trading, he said.

In October the stock market operator said that earnings before interest, tax, depreciation and amortisation would be at the low end of its previous guidance of $22.5 million-to-$26.5 million due to the cost of hiring a new chief executive and restructuring its agri division.

"While recognising NZX's revised guidance, the 4Q16 metrics were slightly better than we had expected and accordingly we have increased our FY revenue and earnings expectations," he said. First NZ now expects full-year ebitda of about $23 million.

The brokerage trimmed its forecast revenue by 1 percent to $77.6 million and $80.1 million respectively for 2017 and 2018, while lifting ebitdaf by 3 percent to $30.6 million and $31.7 million respectively those two years.

Costs would be lower in 2017 and 2018 than in 2016 because there wouldn't be a repeat of extra costs such as the CEO transition including $1.9 million for the departure of former chief executive Tim Bennett, $2 million of costs related to grain trading, $2 million of agri-magazine costs and $3.2 million of mainly Ralec litigation costs.

Mark Peterson is acting CEO while the company seeks a permanent replacement for Bennett.

The new permanent CEO may embark on a review of NZX's structure and operations when they're appointed. Main said given all the upheaval the board may want to signal its confidence in the core business and how it continues to have the business run. "As such we continue to think investors should consider the potential for a raise in the dividend payout when thinking about NZX," Main said.


Jonathan Underhill
Mon, 30 Jan 2017
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NZX reiterated at 'outperform' by First NZ