Analysts at Goldman Sachs have been running the rule over a popular ASX 200 stock this week.
But unfortunately for its shareholders, the broker believes that the risks are currently to the downside and that they should be selling its shares before it is too late.
Let's now dig a little deeper into what is making the broker bearish about this blue-chip stock.
Which ASX 200 stock is a sell?
The stock in question is the Australian stock market operator, ASX Ltd (ASX: ASX).
According to the note, this morning, the broker has initiated coverage on the ASX 200 stock with a sell rating and a $60.00 price target. This implies a potential downside of 6.1% from current levels.
Goldman summarised its bearish stance. It said:
We initiate on ASX with a Sell rating and 12-month PT of $60.00. While ASX has seen substantial regulatory, cost and margin pressures, we think the balance of risks are still skewed to the downside with prospects that appear less appealing compared to other sectors / stocks in our coverage.
What else is the broker saying?
Goldman has concerns over regulatory pressures, believing that its near monopoly on clearing and settlements (CS) could be in danger. It explains:
As a proportion of group revenues, we think ~12.6% of ASX's 1H24 revenues currently relate to clearing and settlement where ASX has a monopoly and could see some risks from any competition over time. […] While Clearing and Settlement (CS) isn't a legislated monopoly in Australia, the requirements to operate a CS facility are high making it expensive and reducing the risk of competition. […] However, regulators appear keen to open up competition in CS.
Another reason the broker is bearish on the ASX 200 stock is concerns that capex could be rising. Goldman adds:
FY24 Capex guidance provided by ASX is $110m to $140m with FY25 Capex guidance to be provided at ASX's Investor day in June. We think there is a risk of Capex levels skewing higher into FY25 or maintained at these elevated levels noting CHESS replacement costs + tech modernisation ramp up including upgrade to ASX's derivatives clearing and trading platform. We think ASX is also shifting opex growth to capex (i.e. reduction in non project headcount + some growth in project headcount).
Overall, in light of the above, the broker feels that investors should avoid the company until the risk/reward on offer with its shares is more compelling.
