Latest Earnings From Singapore Exchange Limited

Yesterday evening, Singapore Exchange Limited  (SGX: S68) had announced its fiscal second-quarter earnings for the quarter ended 31 December 2015.

As the only bourse-operator in Singapore, Singapore Exchange holds a monopoly position and derives its revenue from a variety of sources. You can learn more about the company in here.

Financial highlights

In its fiscal first-quarter earnings, Singapore Exchange had experienced a great quarter with its revenue and profit experiencing big year-on-year jumps of 30% and 28%, respectively.

However, in the three months ended 31 December 2015, Singapore Exchange’s top-line slipped by 0.2% to S$194.6 million from a year ago. Meanwhile, profit had inched down by 3.3% to S$83.7 million over the same period.

Singapore Exchange’s cash flow also weakened. In the reporting quarter, the company had churned out free cash flow of S$55.2 million (S$76.0 million in cash flow from operations vs. S$20.8 million in capital expenditures) as compared to the number of S$68.3 million seen a year ago (S$88.7 million in cash flow from operations vs. S$20.4 million in capex).

Despite the lower cash flows and profits, Singapore Exchange’s balance sheet remains in pristine condition. As of 31 December 2015, the company had S$718.9 million in cash & equivalents and zero debt. The company had also declared an interim dividend of S$0.05 per share for the reporting quarter, some 20% higher than the interim dividend of S$0.04 per share a year ago.

Operational highlights

Singapore Exchange classifies its business into five main segments, namely, Issuer Services, Securities, Depository Services, Derivatives, and Market Data & Connectivity. It was a mixed bag of results for the segments, with only the latter three showing revenue growth in the reporting quarter.

The Securities segment – Singapore Exchange’s second-most important segment- saw a 10% year-on-year dip in revenue to S$46.6 million in the reporting quarter primarily due to a slump in market activities. The securities daily average traded value (SDAV) had decreased by 11% to $0.93 billion while the total traded value had slipped by 9% to $59.5 billion.

Singapore Exchange’s largest revenue contributor (at 40% of total revenue for the reporting quarter) is the Derivatives segment. Revenue there had inched up by 1% to S$77.6 million from a year ago. The segment’s growth can be partly attributed to a 121% leap in volumes for Iron Ore contracts. Within the segment, a decline in volumes of Japan Nikkei 225 futures and options had been a drag on top-line growth.

Market Data & Connectivity saw an 8% improvement in revenue to S$21.6 million. Singapore Exchange had enjoyed increased derivatives market data sales and growth in colocation services. Meanwhile, the Depository Services segment reported a 14% jump in revenue to S$29.7 million on the back of higher volumes of institutional securities settlement and higher number of new accounts opened by Depository Agents.

We’re down to the last segment – the Issuer Services segment. Revenue there had dipped by 8% year-on-year to S$19.3 million largely due to a big drop in the number of new equity and bond listings in the reporting period as compared to a year ago. For instance, there were only a total of 5 new listings (raising S$410.8 million) in the reporting quarter as opposed to 14 new listings (raising S$709.7 million) a year ago.

Prospects and valuation

Singapore Exchange closed at S$6.65 yesterday. At that price, the company’s valued at 19 times trailing earnings.

To keep up to date on the latest financial and stock market news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.