A lack of investor confidence is weighing on ASX's profits. Trading at a premium to the market, there's no reason to rush to buy the shares.
ASX Limited (ASX: ASX) today reported profits for the year ended 30 June 2012 fell 2.9% to $346.2, blaming tough trading conditions. The fully franked full year dividend is 177.9 cents per share, also down 2.9%.
The ASX had a strong start to the year, but the second half deteriorated, with revenue in that period falling 5.1% and earnings declining 8.6%.
And things aren't looking much better since their year end, with activity levels in the equity and derivative markets well below the same period in the previous year.
CEO Elmer Kupper said "Recent activity levels reflect the ongoing uncertainty surrounding the European sovereign debt crisis and the global growth outlook. Market volatility has reduced, affecting volumes in Australia's interest rate futures market."
Europe. The problem-child that won't go away. Although equity markets are currently calm, with the VIX "fear index" trading at close to 2007 levels, investors are still sitting on the sidelines.
Bring on the volatility, says the ASX, but higher volatility generally happens during market wobbles. It seems like a no-win situation for investors.
Mr Kupper says the ASX will be in a strong position "when investor confidence returns." Sound familiar?
We hear a similar tune from retailers including Harvey Norman (ASX: HVN) and JB Hi-Fi (ASX: JBH), who are patiently waiting for consumer confidence to return.
With its shares at around $31.50, the ASX trades on a P/E of around 16 and a dividend yield of 5.65% — not cheap, especially when compared to overseas exchanges like NASDAQ OMX Group (Nasdaq: NDAQ), trading on a forward P/E of just 9, and London Stock Exchange's (LSE: LSE) P/E of 12.5.
And it's not as if the dividend yield is earth-shattering. Volatility ebbs and flows, as does investor confidence. Both will return. In the meantime, there's certainly no rush to buy shares in the ASX.
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