Cost Growth and Interest Rates Hit ASX’s First Half but Second Half Improvement Likely.

We have maintained our earnings forecasts and fair value estimate for wide-moat ASX Limited at AUD 57.00 per share following its interim financial result, which was in line with our expectations. The ASX’s share price has performed well in recent years, increasing by over 100% over the past five years despite reasonably steady mid-single-digit annual EPS growth. Over the same period, the P/E ratio has increased to 33 from 18, which we expect is largely due to the fall in interest rates and associated asset yield compression. At the current market price of AUD 84.26, we continue to believe ASX is significantly overvalued. We forecast an EPS CAGR of 4% over the next decade, versus 3% over the past decade, and a weighted average cost of capital of 7.5%.