From Reuters: TSX Group surgesTSX Group surges on earnings amid deal speculation
August 1, 2006, 11:51 am
TORONTO (Reuters) - TSX Group Inc. shares hit a three-month high on Tuesday, benefiting from last week's blockbuster earnings release, while expectations build that the equity exchange owner will strike a deal with a U.S. bourse.
TSX, which owns the Toronto Stock Exchange and TSX Venture Exchange, has been on a tear since the company reported last Wednesday a 60-percent increase in core earnings during the second quarter.
The shares have risen 8.9 percent since then, compared with a 2.4-percent drop for the TSX financials index.
In afternoon trading on Tuesday, the stock was up 95 Canadian cents at C$47.80.
"Operationally, they beat a lot of analysts' forecasts, and that caught us off guard," said Jason Donville, an analyst at Sprott Securities in Toronto.
Profit was driven chiefly by a sharp jump in trading revenue, which came despite a slump in equity markets during the quarter.
Donville, who upgraded the stock months ago due to a softening share price, said the stock still trades cheaply given the strength of its business.
"They're trading around 15 times earnings net of cash, and that's just phenomenal for a monopoly like this," he said.
TSX has expanded beyond its core equity business in recent years, picking up the Calgary-based Natural Gas Exchange and a chunk of the CanDeal bond trading platform. Chief Executive Richard Nesbitt has said equity derivatives are the next frontier.
Donville noted that TSX did not raise its dividend last week, breaking a two-year stretch of upping the payout every other quarter.
He said this could be a sign that TSX is conserving its sizable cash hoard for a long-rumored acquisition or partnership with a U.S.-based exchange.
"I think they see that things are starting to come into view in terms of M&A, and I think they want to keep their powder dry," he said.
Nesbitt told Reuters in early June that TSX plans to eventually buy, partner with, or invest in a U.S. exchange, although he said at the time that price was an issue.