TMX Group Ltd. chief executive John McKenzie expects new listings on the Toronto Stock Exchange and TSX Venture Exchange to remain robust until the end of the year, following a strong quarter for initial public offerings and financings, particularly in the technology and mining sectors.
Over the past year, TMX has benefited from a jump in Canadian technology IPOs, most notably Nuvei Corp.’s US$833-million offering in September. A surge in mining deals also helped boost TMX’s "capital formation” revenue, as the stock exchange operator generates fees when companies raise money. The third quarter also saw Newcrest Mining Ltd., Australia’s largest gold miner, cross-list on the TSX.
“It’s not just one sector driving this," Mr. McKenzie said on a quarterly earnings call Thursday. "We talk … about the strength in mining, the strength in tech, but we’re also seeing some industrial [sector financings]. We had an IPO of a natural gas company last month, which is the first major energy IPO we’ve had in two years.”
Mining companies listed on both the TSX and TSX Venture Exchange have raised a total of $5.5-billion so far in 2020, an increase of 56 per cent over last year. Meanwhile, technology companies have raised $6.2-billion this year, which is "more than any other full year in the last decade,” Mr. McKenzie said.
The pace of financings and new listings will likely remain strong in the coming months, Mr. McKenzie said, as his team “continues to work on a lot of new file activity.”
TMX’s third-quarter earnings were largely in line with analysts' expectations, with top line growth from listing fees and Trayport, the company’s energy trading business, offsetting a steep drop in revenue from derivatives trading.
TMX reported revenue of $207.6-million, up 6 per cent compared with the same quarter last year. Net income was $70-million, or $1.24 per share, which is up 13 per cent year over year.
On an adjusted basis, earnings were down 8 per cent compared with the preceding quarter, and TMX stock was down 3 per cent in Thursday morning trading.
The company continues to benefit from stock market volatility, earning money from elevated trading volumes. However, it earned less from equity and fixed-income trading than in the first two quarters of the year, when the pandemic led to a dramatic collapse and then rebound in stock prices.
Between the TSX, TSX Venture Exchange and Alpha Exchange, equity trading volumes were up 39 per cent in the first nine months of the year compared with the same period last year.
“We are anticipating that there’s potential for volatility this week and beyond, depending on what happens south of the border. But in the longer term, when we’re in this sustained low-interest-rate environment, that’s generally a positive factor for equity trading,” Mr. McKenzie said.
At the same time, expectations around sustained low interest rates have hurt the company’s derivatives business, which is conducted on the Montreal Exchange. Market participants use derivative contracts to hedge against changes in interest rates – something central banks have signalled they will refrain from doing in the near term to support economic recovery.
TMX saw revenue from its derivatives trading and clearing business drop 26 per cent in the third quarter compared with the same period last year.
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