TMX Group Earnings Decline as Stock Sales, Trading Slow
February 08, 2012, 10:53 AM ESTBy Doug Alexander
(Updates with CEO comments from seventh paragraph.)
Feb. 8 (Bloomberg) -- TMX Group Inc., the Toronto Stock Exchange owner that agreed to be taken over by a group of Canadian banks and pensions, said fourth-quarter profit fell 21 percent as trading slowed and companies did fewer stock sales.
Net income fell to C$52.7 million, or 70 cents a share, from C$67 million, or 90 cents, a year earlier, Toronto-based TMX said today in a statement. Adjusted earnings of 74 cents a share missed the 84-cent average estimate of four analysts surveyed by Bloomberg. Revenue fell 7.1 percent to C$161.7 million.
Equity trading volumes fell 32 percent from a year earlier on the Toronto Stock Exchange and TSX Venture Exchange as Alpha Group and Chi-X Canada ATS Ltd. won business. The value of equity financings on TMX exchanges fell 45 percent in the period, according to company data. A C$5.7 million cost tied to its C$3.73 billion takeover offer by Maple Group Acquisition Corp. also pared profit, TMX said.
TMX shares fell 0.8 percent to C$41.90 yesterday, trimming their year-to-date gain to 0.5 percent. The stock fell 0.2 percent to C$41.80 at 10:21 a.m. in Toronto trading. The Bloomberg World Exchanges Index has risen 15 percent this year.
In October, the company backed the takeover bid from a group of Canadian financial institutions after initially rejecting the offer. Every other major exchange deal announced since October 2010 -- except the $1.5 billion merger between Russia’s Micex Exchange and RTS Stock Exchange -- has failed, including Deutsche Boerse AG’s transaction with NYSE Euronext. The bids were valued at a total of $37 billion when announced, according to data compiled by Bloomberg.
Maple Bid
Maple Group, whose 13 members include Toronto-Dominion Bank, Canada Pension Plan Investment Board, and Manulife Financial Corp., first bid for TMX in May. Maple needs approval for the takeover from provincial regulators and Canada’s Competition Bureau, which said in November it had “serious concerns” about the transaction.
“I’m in the Maple proposal, if you will, with both feet, so there should be no mistaking about whether or not I think it is good for our company and good for the capital markets here,” TMX Chief Executive Officer Thomas Kloet said in a conference call with analysts.
TMX still has “fabulous opportunities” to make the company bigger even if the Maple proposal doesn’t succeed, Kloet said, adding that his first choice is to reinvest in the business though he’d also consider takeovers, as well as balancing growth with dividends and share buybacks.
Repo Clearing
One area of expansion is providing clearing for fixed- income repurchase agreements, a project TMX has pursued since at least December 2009.
“It’s taken us a little bit longer to get it out the door, but I’m quite comfortable that we’re well on the way to a launch this quarter,” Kloet, 53, said. “It’ll provide us with a new space to earn clearing revenues and allow us to serve some new constituents.”
Revenue from trading and clearing fell 6.9 percent in the quarter to C$62.1 million, the company said. Fees from listings and other issue services fell 17 percent to C$53.9 million, while information services revenue rose 9.9 percent to C$43.3 million.
The value of stock sales on TMX exchanges fell 45 percent to C$11.3 billion in the quarter from a year ago, TMX said.
Derivatives Contracts
The number of derivatives and options contracts trading on the Montreal Exchange rose 23 percent to 14.4 million, while the number of shares changing hands on the Toronto Stock Exchange and TSX Venture Exchange fell 32 percent to 35.9 billion, TMX statistics show.
TMX’s equity exchanges had 67 percent of the Canadian market for stock trading in the quarter, down from 72 percent a year ago as Alpha and Chi-X gained, according to the Investment Industry Regulatory Organization of Canada. TMX had 99 percent of stock trading at the start of 2007.
--Editors: Joanna Ossinger, Nick Baker
To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
