A Broker's View: NZX

GRANT DAVIES
Last updated 05:00 05/10/2013

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OPINION: Company: NZX Limited

Sector: Finance and other services

Overview: NZX facilitates capital raising and securities trading. Its main function is to provide a market for the trading, clearing and settlement of securities. NZX also operates four agricultural and information businesses.

The company has been working hard to restore faith in the New Zealand capital markets, as evidenced by the commissioning of research reports to support the Meridian Energy float.

NZX CEO Tim Bennett has made no secret of his desire to increase new company listings, something that was severely lacking under his predecessor.

Pros: As a monopoly provider of an essential service the NZX should be able to maintain strong profit margins. The increasing amount of KiwiSaver money flowing into the market can only benefit the NZX over time.

The positive sentiment in the share market at the moment will also help underline earnings. Metrics released to the market on Thursday showed the total value traded on the market so far this year was $30.2 billion, up 43.2 per cent on 2012.

The NZX will be pleased to see that the combined Market Capitalisation (i.e. value) of all companies on the NZX is up 25.4 per cent to $79.7b, which is 38.1 per cent of GDP.

Cons: Although the increased size of the share market is positive and will help the underlying earnings of the company, a comparative look across the ditch puts the 38.1 per cent mentioned above into context.

The Australian share market currently has a combined Market Capitalisation of AU$1.5 trillion, approximate 93 per cent of GDP. We can take from this that the NZX has a long way to go in increasing participation in the share market by both companies and investors.

The NZX will suffer if world markets deteriorate as trading volumes will decrease, listings will be come less likely and the public perception of the markets will be dented.

Price performance: The NZX has performed well in recent years, ticking up 24 per cent in 2012 and gaining another 4 per cent so far in 2013 to recently trade at $1.26.

Investment outlook: A monopoly with reasonable gross dividend yield of 5.51 per cent that has growth opportunities with new listings and increasing KiwiSaver investment.

*A Broker's View is written by Grant Davies, NZX Associate Advisor, employed by Hamilton Hindin Greene Limited. This article represents general information provided by Hamilton Hindin Greene, who may hold an interest in the security. It does not constitute investment advice. Disclosure documents are available by request and free of charge through www.hhg.co.nz.

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