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ASX share price falls 1% on half-year earnings results

The ASX Ltd (ASX: ASX) share price has dropped 1% in early trade after its half-year earnings release this morning.

The ASX recorded its 6th consecutive first-half increase in net profit after tax (NPAT) and dividend per share (DPS) as profit increased 6.8% for the half. Revenue for the exchange was up 3.8% on a statutory basis to $24.7 million while earnings before interest, tax, depreciation and amortisation rose 2.1% on a statutory basis to $319.5 million.

On a like-for-like (i.e. underlying basis) the numbers were even better, with earnings per share (EPS) up 10.1% to 11.7 cents per share (cps) with investors set to receive 7.2 cps in the form of a 114.4 dividend franked to 90%.

The big revenue drivers for the ASX were an 8.0% increase in Listing and Issuer Services, a 6.3% increase in Derivatives and OTC Markets and an 8.6% increase in Equity Post-Trade Services. The company saw its derivatives revenue increase in large part due to increased hedging as electricity prices continued to rise throughout the year.

The ASX benefitted from a broadly strong year in global equities, despite higher volatility in Q1 and Q4 2018 as broader macroeconomic headwinds continued to loom. Interest and dividend income increased 43.8% to $54.9 million during the period with net interest earned on collateral balances up 59.3% in the half.

Operating expenses increased 9.4% year-on-year to $105.2 million in 1H19 while capital expenditure of $27.6 million was more than double that of 1H18 investment. This was largely due to CHESS replacement and related infrastructure alongside investment in a secondary data centre and data analytics platform.

Foolish Takeaway

The ASX share price is currently trading at a P/E ratio of ~29x earnings which is well above the ASX200 average but remains largely beholden to volatility in global markets. If we see an increase in volatility ahead of Brexit and any ongoing US-China trade war tensions, fewer listings could spell trouble for 2H19 revenue and see the share price fall further.

I think the company is in a solid position for those looking for a bit of growth, but I’d be looking towards more capital preservation in the likes of AGL Energy Limited (ASX: AGL) or Origin Energy Ltd (ASX: ORG) at this point in the cycle.

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of ASX Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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