Some of the numbers the Australian Securities Exchange throws off in its profit reports makes the big banks look like ordinary investment conveyances. It spends roughly half what the banks spend to earn a dollar, for example.
The big four banks had an average cost-to-income ratio of 44.4 per cent last year. ASX's costs rose by 5.1 per cent to $153.6 million in the year to June. Its revenue rose by 6.6 per cent to $658.3 million, giving it a cost-to-income ratio of 23.3 per cent.
ASX's profit margins are also blush-worthy. In the June year it kept 76.7¢ of every dollar of revenue as gross profit. Its better than expected 10 per cent higher net profit of $383.2 million equated to a bottom-line margin of 58 per cent.
It is paying about 90 per cent of net profit in dividends, which rose by 4.5 per cent in the year to June. After Thursday's 1.6 per cent rise its share price, it offers a not-so-slouchy dividend yield of 4.8 per cent before franking credits, which are attached.
On the sharemarket the ASX runs the banks rule, however. Measured for their total return including share price gains and dividends, the Commonwealth Bank, ANZ, the National Australia Bank and Westpac have registered two-year gains of 63 per cent, 49 per cent, 54 per cent and 59 per cent, respectively. ASX's two-year return over the same time was 33 per cent.
In the past year, CBA, ANZ, NAB and Westpac have posted gains of 16 per cent, 18 per cent, 12 per cent and 18 per cent, respectively. ASX's one-year return is 10 per cent.
There's a couple of factors at work. First, expectations for ASX are high. Its shares are trading on a price-to-earnings multiple of almost 19 times, a valuation that demands solid, growing returns. Even after their big share price gains in recent years the banks are more conservatively priced, at between 13.4 and 15.1 times earnings.
ASX chief executive Elmer Funke Kupper is also running a business that mainlines the capital markets, and the bull market that developed last year and has continued this year has some distinctly odd features.
There are bull market tinges in ASX's latest numbers. It booked $40.9 million more revenue, and a quarter of it came from fees on new floats, for example.
New companies listed during the year at an average pace of two a week, and came fastest in the second and fourth quarters of the year: the same quarters were ASX's strongest for revenue and gross profit growth.
The division that clips the coupon on new floats and share offers by companies that are already listed boosted revenue by 10.9 per cent or $15.2 million overall, and accounted for 37 per cent of ASX's revenue lift,
ASX's futures trading platform also lifted revenue by 9.7 per cent to $185 million, and every major business the ASX runs posted a revenue increase. Funke Kupper says this last happened in the year to June 2008, just before the global financial crisis ruined the party.
The sharemarket business that most people still think of as the heart of the ASX continued to struggle in the latest year, however. It boosted revenue by 2.3 per cent to $117.3 million, about $68 million less than ASX's futures business, and about $38 million less than the listings and issuer services business.
Funke Kupper is doing good things in the equity market space. ASX's Centrepoint trading platform lifted its share of ASX cash market revenue from 11 per cent to 16.9 per cent during the year, for example.
Centrepoint is a semi-dark trading pool that allows investors and traders to trade without initially revealing the size of their order.
They are also able to filter out disruptive small orders from high-frequency traders, and the service appears to be getting traction. It handled about 30 per cent of Australia's dark pool trade during the year, and boosted its share of total equity trading from 4.5 per cent to 7 per cent.
Still, ASX (and every other sharemarket for that matter) is dealing with different buying and trading habits since the global crisis.
Ahead of the 2008-09 meltdown, bull markets featured substantial increases in both share prices and trading volumes. In this bull market, there is less trading, more long-term investing, and more caution across the board.
Share prices are rising, but trading volumes are rising more slowly, and are still well below pre-crisis highs. Market velocity – trading as a percentage of total market value – is therefore actually falling. It was 103 per cent in 2009-10, 86 per cent in 2012-13, and was 78 per cent in the latest year.
ASX is still doing OK as it expands its range of services and defends its dominant market share. It would take an old-fashioned bull market price and volume surge to put an earnings rocket under its equity market business, however, and it's far from clear that one is coming. The post-crisis bull market is well advanced, and it hasn't sparked a buying avalanche yet.
