Singapore Exchange's (SGX: S68) Latest Earnings: Growth Across All Business Segments

After the stock market closed on Friday, Singapore’s only stock exchange, Singapore Exchange Limited (SGX: S68), posted its financial results for the first half ended 31 December 2020 (1H FY2021).

Overall, the company showed stable growth. 

Let’s find out more right here! 

TL;DR: Growth In All Three Business Segments

• Revenue rose 9% year-on-year to S$521 million with growth across all its three business segments, amid an uncertain environment
• Net profit improved 12% to S$240 million
• SGX’s balance sheet remained healthy with a net cash position of S$455 million
• Interim dividend per share rose 7% to 8.0 Singapore cents, up from 7.5 cents a year ago

Show Me The Moolah 

SGX’s 1H FY2021 revenue climbed to S$520.8 million, up 8.8% from S$478.5 million a year ago. 

All of SGX’s three business segments — Fixed Income, Currencies and Commodities (FICC); Equities; and Data, Connectivity and Indices (DCI) — saw higher revenue. 

Operating expenses increased by 10.3%, giving a 7.3% rise in operating profit to S$272.6 million. 

The higher expenses were largely from higher staff costs and an increase in processing and royalties expenses. 

Correspondingly, net profit climbed 12.4% to S$239.8 million, up from S$213.3 million last year. 

Excluding one-off gains and other adjustments, adjusted net profit would have increased by 7% to S$228.0 million. The adjusted figure is a new metric SGX is showing to better reflect its underlying operating performance. 

The stock exchange’s balance sheet is still strong, with way more cash than debt. 

As of 31 December 2020, SGX’s cash and cash equivalents stood at S$943.1 million with S$488.5 million in total borrowings, translating to a net cash position of S$454.7 million. A year ago, it had S$603.3 million in net cash. 

SGX’s free cash flow for the latest period grew 2% to S$228.2 million.

Free cash flow is money that the exchange can use to pay out dividends to shareholders, buy back shares, make acquisitions, pay off debt, and reinvest into its business.

Ka-Ching! 

Since the start of FY2019, SGX revised its dividend policy, as mentioned in an earlier earnings release (emphases are mine):

“From FY2019, SGX will revise its dividend policy from one based on a percentage of net profit, to one based on an absolute amount.

The new policy aims to pay a sustainable and growing dividend over time, consistent with the company’s long-term growth prospects. This will provide flexibility for SGX to balance its dividend payments with the need to retain earnings to support growth.”

In the final quarter of FY2020, SGX said (emphasis is mine):

“Barring unforeseen circumstances, the annualised quarterly dividend going forward will be 32 cents per share, an increase of 7%. The higher quarterly dividend is in line with our policy to pay a sustainable and growing dividend over time, consistent with our long-term growth prospects.”

As promised, for the latest quarter, SGX declared an interim dividend per share of 8.0 Singapore cents, up from 7.5 cents a year ago. 

SGX’s dividends are well-covered as well. Its dividend payout ratio is a conservative 71%. 

What Does The CEO Say? 

Looking ahead, Loh Boon Chye, SGX’s chief executive, said the following: 

“Having established ourselves as a multi-asset exchange, we will continue to drive growth through strategic partnerships, client acquisitions and new product offerings such as ETFs covering equities and fixed income. Strengthening our sustainability capabilities and solutions is a key priority, together with the building up of our digital assets expertise. Today, we announced our partnership with Temasek Holdings to build a digital asset infrastructure focused on capital markets workflows. In the coming months, we will expand our fixed income trading capabilities and make further investments to enhance our FX platform,”

At SGX’s current share price of S$10.06, it has a price-to-earnings ratio of 22x and a forward dividend yield of 3.2%. 

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Disclaimer: The information that follows serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer owns shares in Singapore Exchange.