NZX CEO Mark Peterson. Photo/Dean Purcell.
Stock exchange operator NZX's first-half net profit jumped 46 percent but only because losses from since sold businesses dragged down the previous first-half result, although it is predicting a better full-year result.
Operating earnings from continuing operations rose 4.3 per cent and NZX says it is gaining traction with a number of growth initiatives.
These include a 73.5 per cent increases to $7.7 billion in capital raised across NZX's equity, debt and funds markets in the six months and a 15.1 per cent increase in the number of trades on NZX, although the value of those trades fell 9.7 per cent to $18.4b and led to a 17.3 per cent fall in secondary market revenue.
Net profit for the six months ended June rose to $6.4 million from $4.4m in the same period last year, which included $2.5m in losses from the sold businesses. Excluding those losses, the net result was down 7.2 per cent.
"Being a tighter, more focused business is paying off," chief executive Mark Peterson told analysts on a conference call.
NZX is now seeing growth in almost every aspect of its business, Peterson said.
Shares of Napier Port will begin trading on NZX later this month after a $234m capital raising.
It was the second IPO this year after a more than two-year drought since the May 2017 listing of Oceania Healthcare.
"We might have some further IPO activity before the end of the year," Peterson said, a claim investors have heard before.
"We all know that these things have an element of uncertainty to them. We are hearing some good things and we're doing everything we can and it would be great if they come off," he said.
"It's one of those things we can't commit to but it's worth letting the market know that people are looking at their options."
New listings on NZX in 2018 numbered just two, neither of them IPOs – QEX Logistics' compliance listing and PaySauce's backdoor listing through the shell of Energy Mad.
And 2017 wasn't much better with Oceania Healthcare's $200m float in May that year and TIL Logistics Group's backdoor listing in December.
But a number of companies big and small delisted from NZX last year including Xero, Trade Me, Tegel and SLI Systems.
NZX has been considerably more successful at encouraging debt listings – new retail listings rose 52 per cent to $2.53b in the six months ended June while wholesale listings went from nothing to $1.47b.
Peterson says the retail appetite for listed bonds is "one of the unique features" of the New Zealand market but he doesn't attribute the recent growth to falling bank deposit rates.
"I think the fundamentals of why it works probably haven't changed too much."
However, the Reserve Bank's proposals to raise minimum bank capital requirements could impact on issuance – RBNZ is proposing that the big four banks nearly double their minimum capital from 8.5 per cent of risk-weighted assets to 16 per cent over a number of years.
"As banks think about their capital levels and think about how they utilise their capital, the corporates are probably sitting there saying, let's make sure we've got some diversification if credit tightens up from the banking sector," Peterson says.
A number of commentators have predicted those most likely to be squeezed by the proposed new capital requirements are farmers, the construction sector and small businesses.
Peterson says NZX's $40m subordinated notes issue last year is an example of a smaller business taking advantage of the listed debt market.
"We're not a particularly large business but we managed to issue a bond in 2018 and issued it well."
NZX's total revenue in the latest six months fell 1.2 per cent to $32.9m.
It says changes made in October to its trading and pricing structure to facilitate increased trading automation should deliver growth over time. But those changes, and periodic re-weightings of NZX-listed stocks in large global indices, contributed to the fall in revenue in the latest first half.
On the positive side, on-market trading reached a record 61.1 per cent of total market value traded in the month of June.
The company's data and insights revenue rose 13.9 per cent to $6.3m with royalties from terminals rising 5.6 per cent and subscription and licence revenue growing 22.9 per cent.
Dairy derivatives trading volume rose 27.5 per cent, making it the fastest-growing dairy derivatives globally.
A new extended-hours trading session aimed at capturing additional volume from Asia and Europe led to more than 50 per cent of trades now taking place in that session.
NZX's funds under management, including Smartshares Exchange-Traded Funds, SuperLife Superannuation and KiwiSaver funds, grew 19.4 per cent to $3.5b with member numbers up 10.1 per cent. Net cash inflows rose 8.1 per cent to $174.4m.
Operating revenue from funds management net of fund expenses rose 17.7 per cent, resulting in a 27.4 per cent rise in operating earnings.
NZX says its wealth technologies business continues to focus on winning new customers and that funds under administration rose 86.4 per cent to $2.1 per cent.
NZX will pay a 3 cents per share first-half dividend, the same as last year, and the dividend reinvestment plan will apply, offering a 1 per cent discount. The record date is Aug. 30 and the payment date is September 13.
NZX's dividend reinvestment plan will apply with a 1 per cent discount – that's down from the 2 per cent discount offered for last year's final dividend and the 2.5 per cent discount offered for the previous first-half dividend when the scheme was introduced.
Peterson says about 20 per cent of shareholders participated in the scheme with last year's first-half dividend and about 25 per cent participated for the final dividend.
Directors are guiding for full-year operating earnings of $28-31m, subject to market outcomes, particularly the number of initial public offerings, secondary capital raisings and equity and derivatives trading volumes.
Operating earnings in calendar 2019 from continuing operations were $27.3m.
NZX shares are 1 cent lower at $1.19. They have gained 10 per cent in the past year compared with the more than 20 per cent gain in its benchmark S&P/NZX 50 Index.