Now could be the time to sell ASX Ltd (ASX: ASX) shares.
That's the view of analysts at Goldman Sachs, which are feeling bearish about the ASX 100 stock.
What is the broker saying about this ASX 100 stock?
Goldman has been looking at the stock exchange operator ahead of its results next month.
It believes there are a number of key issues and trends for investors to look out for. The first is divisional trends. It said:
1) Divisional trends: a) Listings benign: Listed entities declined over 2H24 but fee increases could offset this pressure. Compared to 1H24, IPO volumes were benign and secondary raisings slightly softer. Any recovery here will be lagged as revenues are amortised. b) Derivatives/ Futures strong: over 2H24 v 1H24 benefiting from interest rate volatility. c) Cash market trading up on 1H24: with an improvement through late 2H24 – similar trend for CS.
And while Goldman expects improvements in collateral balances and fee changes, it sees corporate bonds as a drag. The broker adds:
2) Collateral balances expected to improve over 2H24: Albeit ASX flagged stability in the investment spread at 10bps but expected this to increase over time. 3) Corporate bonds: issuance likely to be a slight drag on interest income as deployed. 4) Fee changes: Listing fees generally up ~5% on average we think across Jul-24/Jan-25. We also note fee increases in Austraclear across holding and transaction fees.
Also worth looking out for are movements in its equity investments and regulatory risks. It commented:
5) Equity investment portfolio: a) Sympli: Implications for Sympli from ARNECC pausing the interoperability program and standing down their project team. We expect small losses from Sympli to persist. b) Grow Inc: Update on profitability and participation in latest funding round. 6) Other key issues: a) Progress on ASIC's investigation into suspected contraventions of the ASIC Act 2001 and the Corporations Act 2001 in relation to the CHESS replacement program — see here — suggesting potential regulatory risks. b) Despite regulatory changes being implemented, we think the threat of competition is low, noting Capex requirements.
Sell rating retained
The note reveals that Goldman has held firm with its sell rating on the ASX 100 stock with an improved price target of $59.50.
Based on its current share price of $64.41, this implies potential downside of 7.6% for investors over the next 12 months.
The broker concludes:
We are Sell rated on ASX because: 1) Capex guidance remains elevated into FY25-FY27 from ongoing CHESS replacement project and technology revamp with risks on execution. 2) Risks arising from enhanced regulatory scrutiny on CHESS replacement and ASIC investigation. 3) Potential upside from a recovery in cyclical revenues is likely to be small with D&A drag to result in very muted earnings growth. 4) ASX's Clearing and Settlement ROE is well below Group ROE target.
