NZX released today the financial result for Q3 2010.
NZX’s Q3 result is NZX’s most sharply positive and improved profit result of 2010.
An increase in operating profit (EBITDAF) of 33% to $5.25 million from $3.96 million in Q2 is a strong result, reflecting NZX’s move from a project focus to one centred on operations and sales. NZX has previously indicated that this quarter would see a shift from an infrastructure development programme to “making the base work harder”. This Q3 result is tangible evidence of that. Financially, NZX ended Q3 strongly, with revenues in September 18% higher than the July/August average. This strengthening trend has continued in the first three weeks of October, and management expects it to hold for the remainder of 2010. On the cost side, operating costs reduced by 15% as compared to Q2. While there was a significant one-off rent win in Q3, the underlying core cost based reduced by mid-single digits over this period, in a sustainable manner.
In this period, NZX took two fundamental strategic initiatives - the Clearing House and the derivatives market - from the project phase to operational businesses. NZX also signed a MOU with the RBNZ which cemented the co-operative relationship between the two entities with regard to clearing and settlement in New Zealand. Of particular importance is the provision of emergency liquidity agreed in the MOU.
The foreign exchange movement on NZX’s investment in Markit, shown in the tables under ‘Change in Value of Investments’, is a non-cash charge that fluctuates with the NZD/USD exchange rate. Eliminating this non-cash charge, the Q3 NPAT shows a 38% increase on Q2.
NZX, on October 29, pays its first interim dividend for the 2010 year. At 3.75 cents per share, an expected 50% of the total annual dividend, this reflects a gross dividend yield of 7% at the share price of $1.55 on 22 October 2010. This is off very strong and predictable free cash flows.