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The S&P TSX composite index screen at the TMX Market Centre in downtown Toronto on Nov.11, 2022.Tijana Martin/The Canadian Press

The operator of Canada’s main stock exchange is planning to generate most of its revenues from outside of the country and the traditional stock exchange business.

TMX Group Ltd., X-T which owns the Toronto Stock Exchange, TSX Venture Exchange, Montreal Exchange and TSX Alpha Exchange, disclosed three long-term “transformational objectives” late Monday alongside largely in-line financial results for the final three months of 2022.

The new goals, which TMX expects will take a decade or more to fully achieve, come amid analyst concern over the company’s short-term ability to increase profits amid persistently volatile market conditions.

TMX aims to generate more than half of its revenue from outside of Canada and for the same proportion to come from its market data business. Neither segment accounts for more than one-third of revenue today.

TMX Group sees revenue, earnings rise in fourth quarter of 2022, full year

The company is also aiming for two-thirds of all annual revenues to be recurring, such as annual listing fees and data subscriptions. That would be up from roughly 50 per cent today.

During its most recent quarter, 44 per cent of TMX revenue came from trading, clearing and settlement services that are highly vulnerable to swings in market conditions.

“Those transformation pieces are where we see the long-term transition of the company going to in terms of more global, more recurring revenue and more data,” chief executive officer John McKenzie said in an interview discussing the strategy. “We wanted to show what long-term success looks like.”

The company plans to expand its market data business faster than it has in the past, Mr. McKenzie said, in part through acquisitions. In November, 2022, TMX bought Boston-based corporate-events data provider Wall Street Horizon for an undisclosed sum. In January, the company paid US$175-million for a 21-per-cent stake in New York-based VettaFi LLC, which offers data services and analytics related to exchange-traded funds and global indexes.

TMX also plans to lean heavily on another relatively recent acquisition in order to increase revenues in the shorter term. In 2017, the company bought London-based wholesale energy market trading platform Trayport Ltd. for nearly $1-billion, and price increases for Trayport clients that took effect at the end of 2022 are expected to lift total revenues by between 7 per cent and 8 per cent in 2023.

Mr. McKenzie is hoping such growth prospects will offset investor concerns over market volatility after what he described on a Tuesday morning conference call as a “tumultuous and difficult” 2022. He also acknowledged on the call that “some of those challenges persist into the early weeks of 2023.”

Scotiabank analyst Phil Hardie, who covers TMX with a $160-per-share price target and the equivalent of a “hold” rating, is among those urging investors to remain on the sidelines. In a note to clients on Tuesday, Mr. Hardie said he expects TMX to post a year-over-year decline in earnings per share – a key measure of profitability – over the next three quarters before reverting back to growth.

The issue, Mr. Hardie said, “relates to uncertainty in the midterm outlook for capital markets activity and what the ‘new normal’ might look like for trading and financing, given volatile market conditions.”

In response, Mr. McKenzie said he understands that type of hesitancy, but that “one of the interesting resiliencies in our business model [is that] different market conditions can be headwinds in some parts of the business and tailwinds in others.”

Rising interest rates, for example, have been a headwind in terms of valuation and pricing transactions, he said. However, they have been positive for the TSX Trust business, which provides services as a transfer agent and custody trustee. According to National Bank Financial, every quarter-percentage-point increase in the Bank of Canada overnight rate increases TSX Trust annual revenues by roughly $2.5-million.

“Even on the capital-raising business, if we are in a sustained higher interest-rate market then debt refinancing is now more expensive than it used to be and the equity alternative looks more appealing,” Mr. McKenzie said.

“All of these pieces now have headwinds and also tailwinds and that is what has made our business so much more resilient in 2022 than we would have been in 2012.”

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