Opinions
Stockchase Discover
TMX Group
X-T
HOLD
Feb 14, 2023
Stock price when the opinion was issued
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Recent all time high in share price. Owns shares and will continue to own. Capital light business that is able to generate strong profits. Well executed investor day recently. Has a diverse offering of trading platforms. Would recommend holding for the long term investor. A majority of revenues are recurring which is excellent for profits.
Great company, especially in the context of Canada. He has a few questions about its capital allocation as it's moving into the US, goals seem a little ambitious. Quality firm, generates a lot of cash. Don't chase; valuation is mean reverting.
Keep it on your watchlist. Pick away as the valuation comes down.
We continue to like TMX group. They should continue to benefit in an uptrending market and from a valuation persepctive, given the stability and steady growth, we don't view the 23X P/E as particularly 'challenging'. If a bit more deal activity comes back in the New Year, TMX should see an extra tailwind as well. For entry price, we think something in the range of low to mid-40's here makes sense.
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Fingers in a lot of stock-exchange pies. Companies pay to keep stocks listed. Fees from trading activity, which has been fast and furious. Options market has been even more frenetic. Also has sticky recurring revenue businesses, which are less cyclical. In his dividend growers mandate. Globally diversified.
A wonderful performer in recent years. Not just the TSX, but they have businesses around the world like trading platforms and economic data/analytics, based on subscriptions, so lots of recurring revenues. Their results may move a little due to trading volumes and new listings, but TMX is so diversified that enjoy recurring high margins. The stock has been on a tear, and not cheap now. One of the best companies in Canada.
One of the most defensive plays on the TSX is the TSX itself. Trading under X on its own exchange, the TMX Group just reported another beat, its third in the past year, with revenues jumping 80% over full-year 2021 and net income leaping 60% also over FY 2021. Robust Canadian stock performance (outperforming the Wall Street majors in 2022) and ongoing volatility are good for TMX’s business. Selling data provides another recurring revenue stream. TMX currently pays 2.58% but that dividend has been climbing since 2016. Also, its beta is a measly 0.56 and it trades at 14.16x. Safe. Read: Risk tolerance and safety for our full analysis.