Canada’s largest operator of public markets managed to fare better during the first three months of 2023 than the markets themselves.
TMX Group Ltd. X-T, which owns the Toronto Stock Exchange and the TSX Venture Exchange, reported record first-quarter revenue of nearly $300-million late Monday, thanks largely to the company’s increasing focus on diversifying beyond a reliance on trading fees.
Revenue from the trading and financing activities on TMX-owned platforms actually declined from the start of 2022 as volumes remain low and companies remain reluctant to raise funds amid volatility and economic uncertainty. But the amount of money TMX generated from its global solutions, insights and analytics business grew by 14 per cent on a year-over-year basis as the company continued to pivot from its traditional stock exchange business.
“We had significant momentum in some key areas despite the sustained challenge posed by macroeconomic conditions,” TMX chief executive officer John McKenzie said on a conference call Tuesday morning.
Two analysts who have the equivalent of a “hold” rating on TMX Group increased their price targets Tuesday shortly after the results were disclosed. Bank of Nova Scotia analyst Phil Hardie now expects TMX stock to be worth $161 a share in 12 months time, from $159 previously. In a note to clients, he said the results “continue to demonstrate the relative resiliency of [TMX’s] business model against a challenging backdrop.
National Bank Financial analyst Jaeme Gloyn increased his own TMX price target to $155 a share from $152, telling clients the company delivered “solid momentum” while “containing expense growth.”
TMX shares were trading higher Tuesday, hovering around $140 a share for much of the day.
Much of the revenue growth came from Trayport, the London-based wholesale energy market trading platform that TMX bought for nearly $1-billion in 2017. Price increases for Trayport clients took effect during the quarter and the platform also managed to attract enough new users to increase its total subscriber base of traders by 9 per cent on a year-over-year basis.
“We have substantial runway in that business, the long-term plan we’ve built there has multiple prongs in terms of continuing to grow revenue,” Mr. McKenzie said in an interview. “Trayport is really strong in Europe, but that is not the only market where we can take it.”
TMX is in the early stages of expanding Trayport to the North American market and Mr. McKenzie said the platform’s footprint will become increasingly global.
“As markets deregulate and become desegregated in terms of those pools of liquidity, Trayport provides value by bringing them all together on a single screen,” he said.
The company also has $257-million in excess cash on its balance sheet, chief financial officer David Arnold said on the conference call, which is over and above the $175-million TMX keeps on hand for regulatory purposes. While some of that money could be used to pay down debt, Mr. Arnold said that will depend on how much the company spends making acquisitions, describing its merger and acquisition pipeline as “robust.”
Mr. McKenzie said his “aspiration is to deploy more capital toward growth.”
“We have the balance sheet wherewithal in terms of our existing balance sheet and our capacity to raise additional capital means we can be more aggressive than we have,” he said.
“And I do find we are having more conversations now where there is a meeting of minds or a closing of the gap around valuation.”