ASX Earnings: Costs to Replace Chess Keep Mounting

We maintain our AUD 75 per share fair value estimate for wide-moat ASX following its full-year results. The exchange reported AUD 472 million in underlying profit, slightly below our expectations for AUD 477 million and down 17% on the prior year. The declining profitability was primarily the result of increased expense growth, as the exchange continues to invest heavily to retain its social and regulatory license to operate, following the botched replacement project for its Clearing House Electronic Subregister System, or Chess. Operating income grew 3% on the prior corresponding year, or pcp, as 12% growth in futures- and over-the-counter-clearing revenue, as well as 6% growth in technology and data revenue, helped offset a 13% decline in listings revenue. ASX shares continue to screen as undervalued, as we expect the current increase in expenditures to be temporary in nature.