New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2>NZX&nbsp;</h2>
FY19 — Core Strength, Growth Up and Running
 Jamie Foulkes jamie.foulkes@forsythbarr.co.nz +64 4 491 2217&nbsp;
RESEARCH&nbsp;INSIGHTS
NZX's (NZX) FY19 result beat market expectations, driven by synchronised divisional growth, with four out of five divisions growing organic revenues by more than 10%. Although Secondary Markets failed to meet targets, we recognise its improved liquidity and positive impact from change in fee structure mid-year which we expect to see further benefit from in FY20. The Wealth Technologies business continues to present an excellent pipeline of opportunities with the FY23 Funds under Administration target of NZ$35bn–NZ$50bn unchanged. First time FY20 EBITDA guidance appears conservative.&nbsp; We are encouraged by the evolving group strategy, high quality earnings stream and attractive growth story.&nbsp;
<table class="table table-striped"><colgroup><col span="12"></colgroup>
<tbody>
<tr>
<td style="width: 48pt;">NZX Code</td>
<td style="width: 48pt;">NZK</td>
<td style="width: 48pt;">Financials:Dec/</td>
<td style="width: 48pt;">19A</td>
<td style="width: 48pt;">20E</td>
<td style="width: 48pt;">21E</td>
<td style="width: 48pt;">22E</td>
<td style="width: 48pt;">Valuation (x)</td>
<td style="width: 48pt;">19A</td>
<td style="width: 48pt;">20E</td>
<td style="width: 48pt;">21E</td>
<td style="width: 48pt;">22E</td>
</tr>
<tr>
<td style="width: 48pt;">Share price</td>
<td style="width: 48pt;">NZ$1.45</td>
<td style="width: 48pt;">NPAT* (NZ$m)</td>
<td style="text-align: left; width: 48pt;">14.6</td>
<td style="text-align: left; width: 48pt;">15.5</td>
<td style="text-align: left; width: 48pt;">16.8</td>
<td style="text-align: left; width: 48pt;">17.8</td>
<td style="width: 48pt;">EV/EBITDA</td>
<td style="text-align: left; width: 48pt;">14.3</td>
<td style="text-align: left; width: 48pt;">13.9</td>
<td style="text-align: left; width: 48pt;">12.9</td>
<td style="text-align: left; width: 48pt;">12.1</td>
</tr>
<tr>
<td style="width: 48pt;">Issued shares</td>
<td style="width: 48pt;">268.5m</td>
<td style="width: 48pt;">EPS* (NZc)</td>
<td style="text-align: left; width: 48pt;">5.4</td>
<td style="text-align: left; width: 48pt;">5.7</td>
<td style="text-align: left; width: 48pt;">6.1</td>
<td style="text-align: left; width: 48pt;">6.5</td>
<td style="width: 48pt;">EV/EBIT</td>
<td style="text-align: left; width: 48pt;">19.8</td>
<td style="text-align: left; width: 48pt;">19.7</td>
<td style="text-align: left; width: 48pt;">18.3</td>
<td style="text-align: left; width: 48pt;">17.3</td>
</tr>
<tr>
<td style="width: 48pt;">Market Cap</td>
<td style="width: 48pt;">NZ$389m</td>
<td style="width: 48pt;">EPS growth* (%)</td>
<td style="text-align: left; width: 48pt;">7.1</td>
<td style="text-align: left; width: 48pt;">5.6</td>
<td style="text-align: left; width: 48pt;">8.3</td>
<td style="text-align: left; width: 48pt;">6.3</td>
<td style="width: 48pt;">PE</td>
<td style="text-align: left; width: 48pt;">27.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">25.6</td>
<td style="text-align: left; width: 48pt;">23.6</td>
<td style="text-align: left; width: 48pt;">22.2</td>
</tr>
<tr>
<td style="width: 48pt;">Avg daily turnover</td>
<td style="width: 48pt;">233.9k (NZ$267k)</td>
<td style="width: 48pt;">DPS (NZc)</td>
<td style="text-align: left; width: 48pt;">6.1</td>
<td style="text-align: left; width: 48pt;">6.1</td>
<td style="text-align: left; width: 48pt;">6.1</td>
<td style="text-align: left; width: 48pt;">6.1</td>
<td style="width: 48pt;">Price/NTA</td>
<td style="text-align: left; width: 48pt;">n/a</td>
<td style="text-align: left; width: 48pt;">n/a</td>
<td style="text-align: left; width: 48pt;">n/a</td>
<td style="text-align: left; width: 48pt;">n/a</td>
</tr>
<tr>
<td style="width: 48pt;"></td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;">Imputation (%)</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="width: 48pt;">Cash div yld (%)</td>
<td style="text-align: left; width: 48pt;">4.2</td>
<td style="text-align: left; width: 48pt;">4.2</td>
<td style="text-align: left; width: 48pt;">4.2</td>
<td style="text-align: left; width: 48pt;">4.2</td>
</tr>
<tr>
<td style="width: 48pt;"></td>
<td style="width: 48pt;"></td>
<td colspan="3" style="width: 144pt;">*Based on normalised profits</td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;">Gross div yld (%)</td>
<td style="text-align: left; width: 48pt;">5.8</td>
<td style="text-align: left; width: 48pt;">5.8</td>
<td style="text-align: left; width: 48pt;">5.8</td>
<td style="text-align: left; width: 48pt;">5.8</td>
</tr>
</tbody>
</table>
Our view
Following the strategic refresh in 2017 which saw divestment of non-core assets and rebuilding of the company through a range of new initiatives, we are impressed by the overall performance of the company two years into the five year transformation program. The group is well positioned to benefit from uplift in primary equity capital raisings while demonstrating increasing progress in the ability to leverage further opportunities in raising capital across a wide variety of asset classes. It is pleasing to see the introduction of wholesale debt issuance, while the group pursues opportunity in alternate equity channels such as direct listings and secondary listings. Although FY19 only saw two initial public offerings (IPOs) across the board, we remain sanguine over the long term.
Thematically, progress made in group-wide sustainability (ESG&nbsp;or environment, social and governance)&nbsp;initiatives is notable, with the introduction of five new&nbsp;ESG&nbsp;electronically traded funds (ETFs), listed green bonds and a carbon fund&nbsp;. We believe the demand for&nbsp;ETFs&nbsp;is likely to rise, particularly with the&nbsp;Smartshares&nbsp;brand refresh in FY20 and ongoing growth of&nbsp;Kiwisaver. Additionally, within Data and Insights we feel that&nbsp;ESG&nbsp;reporting could present significant opportunities given the mounting global shift towards sustainable finance. Although it has been a disappointing 12 months for dairy derivatives, we recognise the global scope that exists and would welcome initiatives to further increase speculative trading.
Outlook
NZX&nbsp;has provided FY20&nbsp;EBITDA&nbsp;guidance of NZ$30m–NZ$33.5m (implying -4.5% to +6.7% growth). Its&nbsp;challenges over the next 12 months will be to maximise earnings through the economic cycle, to&nbsp;incentivise&nbsp;and retain listings, further increase liquidity in secondary markets, and leverage significant opportunities in the three key growth engines: (1) Dairy Derivatives, (2) Funds under Management, and (3) Wealth Technologies. We are excited about the growth potential across the group, in particular the Wealth Technologies business given the high barriers to entry with the division well placed to win a number of larger contracts, expected from FY21 onwards.&nbsp;However, with 38% of group revenue coming from Issuer Relationships, a slowdown in primary and secondary issuance would cause a significant headwind. ​​​​​​​

NZX&nbsp;
FY19 — Core Strength, Growth Up and Running
 Jamie Foulkes jamie.foulkes@forsythbarr.co.nz +64 4 491 2217&nbsp;
RESEARCH&nbsp;INSIGHTS
NZX's (NZX) FY19 result beat market expectations, driven by synchronised divisional growth, with four out of five divisions growing organic revenues by more than 10%. Although Secondary Markets failed to meet targets, we recognise its improved liquidity and positive impact from change in fee structure mid-year which we expect to see further benefit from in FY20. The Wealth Technologies business continues to present an excellent pipeline of opportunities with the FY23 Funds under Administration target of NZ$35bn–NZ$50bn unchanged. First time FY20 EBITDA guidance appears conservative.&nbsp; We are encouraged by the evolving group strategy, high quality earnings stream and attractive growth story.&nbsp;



NZX Code
NZK
Financials:Dec/
19A
20E
21E
22E
Valuation (x)
19A
20E
21E
22E


Share price
NZ$1.45
NPAT* (NZ$m)
14.6
15.5
16.8
17.8
EV/EBITDA
14.3
13.9
12.9
12.1


Issued shares
268.5m
EPS* (NZc)
5.4
5.7
6.1
6.5
EV/EBIT
19.8
19.7
18.3
17.3


Market Cap
NZ$389m
EPS growth* (%)
7.1
5.6
8.3
6.3
PE
27.0&nbsp;
25.6
23.6
22.2


Avg daily turnover
233.9k (NZ$267k)
DPS (NZc)
6.1
6.1
6.1
6.1
Price/NTA
n/a
n/a
n/a
n/a




Imputation (%)
100
100
100
100
Cash div yld (%)
4.2
4.2
4.2
4.2




*Based on normalised profits


Gross div yld (%)
5.8
5.8
5.8
5.8



Our view
Following the strategic refresh in 2017 which saw divestment of non-core assets and rebuilding of the company through a range of new initiatives, we are impressed by the overall performance of the company two years into the five year transformation program. The group is well positioned to benefit from uplift in primary equity capital raisings while demonstrating increasing progress in the ability to leverage further opportunities in raising capital across a wide variety of asset classes. It is pleasing to see the introduction of wholesale debt issuance, while the group pursues opportunity in alternate equity channels such as direct listings and secondary listings. Although FY19 only saw two initial public offerings (IPOs) across the board, we remain sanguine over the long term.
Thematically, progress made in group-wide sustainability (ESG&nbsp;or environment, social and governance)&nbsp;initiatives is notable, with the introduction of five new&nbsp;ESG&nbsp;electronically traded funds (ETFs), listed green bonds and a carbon fund&nbsp;. We believe the demand for&nbsp;ETFs&nbsp;is likely to rise, particularly with the&nbsp;Smartshares&nbsp;brand refresh in FY20 and ongoing growth of&nbsp;Kiwisaver. Additionally, within Data and Insights we feel that&nbsp;ESG&nbsp;reporting could present significant opportunities given the mounting global shift towards sustainable finance. Although it has been a disappointing 12 months for dairy derivatives, we recognise the global scope that exists and would welcome initiatives to further increase speculative trading.
Outlook
NZX&nbsp;has provided FY20&nbsp;EBITDA&nbsp;guidance of NZ$30m–NZ$33.5m (implying -4.5% to +6.7% growth). Its&nbsp;challenges over the next 12 months will be to maximise earnings through the economic cycle, to&nbsp;incentivise&nbsp;and retain listings, further increase liquidity in secondary markets, and leverage significant opportunities in the three key growth engines: (1) Dairy Derivatives, (2) Funds under Management, and (3) Wealth Technologies. We are excited about the growth potential across the group, in particular the Wealth Technologies business given the high barriers to entry with the division well placed to win a number of larger contracts, expected from FY21 onwards.&nbsp;However, with 38% of group revenue coming from Issuer Relationships, a slowdown in primary and secondary issuance would cause a significant headwind. ​​​​​​​

NZX: FY19 — Core Strength, Growth Up and Running

New Zealand

NZX Ltd. operates the New Zealand Stock Exchange, the country's primary national stock exchange.  NZX provides markets that facilitate the raising of capital and the trading of corporate securities and operates markets for equities, corporate and government bonds, fixed income securities and alternative equity investments.

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NZX (NZX NZ)

NZX: FY19 — Core Strength, Growth Up and Running

NZX FY19 — Core Strength, Growth Up and Running Jamie [email protected]+64 4 491 2217 RESEARCH INSIGHTS NZX's (NZX) FY19...

Forsyth Barr

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