The share market operator ASX Ltd (ASX: ASX) this week provided updated guidance on its expected expense growth for FY27 and updated capital expenditure, sending its shares rapidly south.
The company said the guidance announcement was informed by its annual planning process, and that its financial expectations for the current financial year were not affected.
Image source: Getty Images
Expenses to spike
But in FY27, the ASX expects total expenses growth of 18-21%, with operating expense growth of 13-16% compared to FY26.
The company said this was largely being driven by technology modernisation, "the expanded Accelerate Program as part of our response to the ASIC Inquiry and investments to support customer-driven growth''.
The expected capital expenditure has also increased, from $160- $180 million to $180- $200 million.
The ASX has kept its dividend policy unchanged, saying it would pay out 75- 85% of underlying net profit, but added that it expected to pay out towards the bottom end of this range for at least the next two dividends.
The ASX also said its operating revenue for the financial year to the end of April was $1.03 billion, up 12.5% on the previous corresponding period.
Mixed view on the outlook
The major brokers have run the ruler over the forecasts and have come up with differing price targets for ASX shares.
UBS is the most bullish, with a price target for ASX shares of $62, compared with the current $46.80 (at the time of writing).
The broker said the cost and capex outlooks were "materially higher than expected", but the ultimate profit and loss impact would be much smaller due to the market operator's ability to recover revenue.
The team at Jarden is also predicting upside for ASX shares, with a price target of $55.30, down from $58.75.
They said:
We have previously flagged FY27 cost upside as a central concern, and today's guidance confirms that risk at a magnitude greater than anticipated, with total expense growth of 18-21% exceeding our estimates by a considerable margin. The read-through is not uniformly negative: crystallising the cost envelope ahead of the CEO transition hands incoming CEO Anthony Attia a defined base rather than an open-ended liability, and the guidance should be broadly sufficient to accommodate Accelerate obligations once finalised, though the reset remains subject to ASIC and RBA agreement.
Jarden said the ASX is trading at a material discount to its 10-year average on a price-to-earnings basis. The broker has a neutral rating on the shares.
Macquarie also has a neutral rating on ASX shares with a price target of $54.00.
Macquarie said it was hard to see the ASX meeting its medium-term EBITDA targets.
They added, "With a review of the business strategy commencing, we maintain our Neutral recommendation''.
