Asset sales supercharge NZX profits

NZX chief executive Mark Weldon said 'People are looking at capital raising options, and for many listing is a good option.' Photo / Mark Mitchell

Sharemarket operator NZX made close to twice as much money trading market infrastructure assets in the last six months than it has from its entire business over the preceding six years put together, its first-half result yesterday revealed.

NZX reported a June-half net profit of $60.76 million against $4.97 million for the same period last year.

The huge increase was down to a $52.1 million gain on the sale of the TZ1 carbon credit registry business which NZX only established last year, and the $10.2 million it received from selling a 22 per cent stake in the Bond Exchange of South Africa, an 83 per cent gain given the price it paid for the holding just a couple of months before.

The company's net profits since it listed on its own market six years ago up until December last year, total $36.8 million.

"We are confident shareholders will be satisfied with these results," said chief executive Mark Weldon.

NZX's stock traded as high as $8.00 before easing back to close down 10c at $7.61.

Weldon told the Weekend Herald the gain on the TZ1 sale which was settled by way of stock in the UK buyer Markit, could be as much as $15 million to $20 million higher or lower, depending on how the business and Markit itself performed. NZX maintains an economic interest in TZ1 with a 50 per cent profit sharing arrangement for the next three years.

The net profit could have been even higher but for the fact NZX took a $1.8 million non-cash provision on its 50 per cent share in stalled Australian equity trading business AXE ECN, which after more than two years is still awaiting an Australian Government decision on whether it will be granted a market licence.

One of its "traditional" revenue streams, fees from listings, enjoyed strong growth, rising 15 per cent to $5.17 million as the credit crisis forced companies to the market for new capital. During the period, $1.69 billion in new equity was raised and $2.87 billion of debt.

NZX said it expected the second half would be even stronger, "reflecting expected continued equity issuance with potential equity IPO activity in quarter four".

"There's a strong consensus view that having more cash in equity is actually a good thing, so we see some good long-term trends around equitisation and we would think they would, over the second half of this and next year, drive quite a lot of capital activity."

Asked about market chatter around the prospects for IPO activity related to private equity-owned businesses, Weldon said NZX was "hearing exactly the same thing".

"People are looking at capital raising options, and for many listing is a good option. As long as the recent run up in prices stabilises, that should provide a good platform for those things."

Meanwhile, revenue from market trading activity continued to suffer from the fallout of the credit crunch - at $2.44 million it was down 8 per cent on a year earlier.

Excluding the proceeds of the assets sales, NZX's operating earnings were up 3 per cent at $9.08 million or up 16 per cent at $10.19 million excluding one-offs like the AXE ECN write off.

Operating revenue rose 17 per cent to $18.63 million while operating expenditure was up 34 per cent at $9.55 million, with Weldon attributing the increase to various acquisitions.

With the proceeds of the asset sales and a recent $20 million capital raising related to the company's abortive bid for Australian market operator NSX, NZX has a strong cash position and has total assets of $147 million against $47 million a year ago.

EXPONENTIAL LEAP

NZX full-year net profit:

2003 - $2.94m
2004 - $3.68m
2005 - $4.9m
2006 - $6.4m
2007 - $8.7m
2008 - $10.2m

Total - $36.82m

Half year 2009 - $60.76m