SGX FY2020 preview: Analysts foresee a 16% growth in earnings

Investment analysts are expecting SGX full-year net profit to come in higher year-on-year at S$455.3 million, alongside an EPS of S$0.424 and dividend sum of S$0.317.

Singapore Exchange (SGX) (S68) will be reporting its full-year results for financial year 2020 (FY2020) after the market closes on Thursday 30 July 2020.

Below, we highlight three areas that investors should be aware of ahead of the earnings report.

SGX saw improved trade activity in June 2020

SGX’s June 2020 review showed that stock market activity improved from the previous two months, while whole equity and FX derivative volumes also grew to three-month highs.

Total securities market turnover value on SGX rose 74% year-on-year in June to S$38 billion, while securities daily average value (SDAV) climbed 50% year-on-year to S$1.73 billion.

The market turnover value of exchange-traded funds (ETFs) also jumped a massive 138% from June 2019 to S$487 million, as the SPDR STI ETF traded 10 times higher year-on-year at S$210 million with fund size crossing the S$1 billion mark during the month.

On the derivatives front, total equity index futures traded volume on SGX rose 20% month-on-month in June 2020 to 14.5 million contracts, the highest in three months.

The bourse said this was led by a 54% increase in Nikkei 225 Index Futures traded volume to 2.23 million contracts from May 2020. MSCI Singapore Index Futures traded volume climbed 14% month-on-month, while FTSE China A50 and Nifty 50 index futures each increased 12%.

SGX stock has declined 18% since late May 2020

SGX’s share price has experienced some highs and lows since the emergence of the Covid-19 pandemic.

Between late March and early April this year, the SGX stock spiked up more than 20% to S$10.04 per share – its highest share price since October 2010, as coronavirus-driven market volatility boosted trading activity globally.

However, the bourse operator was unable to maintain those price levels, as shares tumbled 18% the following month, after the company revealed that it would cease to offer all non-Singapore MSCI derivative products – including those for Taiwan and Net Total Return – starting from February 2021.

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Instead, it was reported that MSCI would move those offerings to the Hong Kong Exchanges and Clearing (HKEX) from next year.

This was viewed by investors and analysts as a big blow for the company, which derived over 12% of its derivatives revenue from MSCI products.

Then in late June, SGX also announced it would acquire the remaining 80% stake in BidFX, a cloud-based FX trading platform for institutional investors that it had owned a 20% stake in since March 2019.

A couple of days later, the stock exchange said it would introduce a futures contract on the FTSE Taiwan RIC Capped Index (FTSE Taiwan) from 20 July 2020.

SGX’s share price rose over 2% in the week that followed.

As of Wednesday 29 July 2020, SGX is trading at S$8.22 per share. This represents a price-to-earnings (P/E) ratio of 19.70, which is below the stock’s five-year P/E average of 22.22.

Analysts expect earnings and dividends to grow by 16% and 6%

Analysts polled by Refinitiv are expecting a net profit of S$107.6 million and earnings per share (EPS) of S$0.099 for the fourth quarter of 2020 ending 30 June 2020.

If realised, this would be lower than Q3 2020’s record net profit of S$137.5 million – a 13-year high, and an EPS of S$0.128. However, comparing to Q4 FY2019, this still represents a 3.6% increase in net profit.

In terms of dividends, analysts are forecasting a pay-out of S$0.094 per share in Q4, up from Q3’s dividend rate of S$0.75 per share.

On an annual basis, the average forecast is for full-year net profit to come in at S$455.3 million, alongside an EPS of S$0.424 and dividend sum of S$0.317.

This would represent an over 16% year-on-year net increase in net profit and EPS, as well as a 5.7% year-on-year growth in dividend rate if the reported figures are in line with estimates.

Finally, in terms of share price ratings, the SGX stock has received a consensus ‘hold’ recommendation from 13 brokers surveyed by Refinitiv.

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