Bloomberg News

TMX Group Quarterly Profit Falls 10% on Trading Slowdown

May 11, 2012

TMX Group Inc. (X), the Toronto Stock Exchange owner that agreed to be acquired by a group of Canadian banks and pension funds, said first-quarter profit fell 10 percent as trading slowed and listing fees dropped.

Net income slipped to C$56.8 million ($56.6 million), or 76 cents a share, from C$63.1 million, or 84 cents, a year earlier, Toronto-based TMX said today in a statement. Revenue fell 7.1 percent to C$162.3 million.

The quarter was less profitable “because of continuing global economic uncertainty,” TMX Chief Executive Officer Thomas Kloet said in a conference call with analysts. “Unlike previous economic downturns, this uncertainty resulted in steep declines in the level of equity trading and financing activity.”

Equity trading volumes plunged 28 percent on the Toronto Stock Exchange, TSX Venture Exchange and TMX Select markets and listings fell. Listings fees decreased 21 percent to C$46.3 million, led by a drop in the number and value of new listings on the Toronto Stock Exchange. Derivatives trading increased.

TMX posted adjusted earnings of 76 cents a share, missing the 88-cents-a-share average estimate of three analysts surveyed by Bloomberg.

TMX fell 0.1 percent to C$47.22 today, below the C$50-a- share tender offer by Maple Group Acquisition Corp.

Trading Volumes Sank

The number of shares changing hands on TMX’s equity markets sank to 39.8 billion in the period from 55.5 billion a year earlier, company statistics show. The value of equity financings rose 19 percent to C$17.1 billion from a year ago, though there were fewer transactions, which limited listing fees.

The number of derivatives and options contracts trading on the Montreal Exchange rose 12 percent to 16.3 million from the year-earlier quarter, according to TMX.

TMX backs a C$3.73 billion takeover bid by Maple Group, whose 13 members include Canadian Imperial Bank of Commerce, Canada Pension Plan Investment Board and Manulife Financial Corp. (MFC) Maple aims to integrate TMX with the Canadian Depository for Securities Ltd. clearinghouse and Alpha Group, a bank-owned exchange operator that competes with the Toronto Stock Exchange.

“Although we do not believe the Maple transaction is a done deal, as we indicated previously, we believe there is a greater likelihood of the transaction succeeding as a result of developments over the past two weeks,” RBC Capital Markets analyst Geoffrey Kwan said today in a note to clients.

Regulatory Approvals

Maple needs approval for the takeover from provincial regulators and Canada’s Competition Bureau for its offer to succeed. Ontario’s securities regulator outlined proposed conditions for the Maple plan on May 3, with a one-month comment period.

“While many of the provisions in the recognition orders may be unnecessary within the current robust structure, we believe that they strike the right balance for a globally competitive TMX Group after the Maple transaction,” Kloet said.

The Maple proposal, which was formalized when TMX signed an agreement with the company on Oct. 30, hasn’t kept TMX from other transactions, Kloet said.

“There have not been any opportunities lost because of Maple,” Kloet told reporters after the company’s annual investors meeting in Toronto. “We have not taken to Maple an opportunity that they’ve said no to.”

Kloet said “a number of opportunities” are still available for an exchange owner, and TMX under Maple would be well placed to pursue deals around the world.

Kloet also said that TMX, whose operating expenses rose 8 percent in the quarter from a year ago, aims to cut costs.

“We are constantly monitoring our cost base and to the extent that we can reduce it, take costs out, we are absolutely going to do that,” Kloet said.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net; David Scanlan at dscanlan@bloomberg.net


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