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Singapore Exchange Limited’s FY2018 Earnings: What Investors Should Know

Singapore Exchange Limited (SGX: S68) is the sole stock market operator in Singapore providing listing, trading, clearing, settlement, depository and data services.

On Friday (27 July), the company released its financial results for the full year ended 30 June 2018 (FY2018). Let’s look at some key highlights from the announcement.

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Financial highlights

Revenue for the full year grew by 5.5% to S$844.7 million. All business segments saw year-on-year improvements. Equities and Fixed Income’s revenue inched up 0.5% to S$406.6 million. Derivatives’ revenue rose 12.1% to S$339.8 million while Market Data and Connectivity’s revenue rose by 5.4% to S$98.3 million.

Since operating expenses rose by a lesser extent than revenue, operating profit grew from S$401.8 million to S$424.9 million, an increase of 5.7% year-on-year.

Net profit improved by 6.9% to S$363.2 million. Consequently, Singapore Exchange’s diluted earnings per share increased to 33.8 Singapore cents from 31.6 Singapore cents.

For the fourth quarter, revenue climbed by 2.5% year-on-year to S$213 million but net profit dipped 1.8% to S$83.7 million.

The company ended the year with S$831.6 million in cash on the balance sheet with no debt. This was an improvement from one year ago when Singapore Exchange’s net-cash position was S$796.4 million.

Free cash flow improved to S$348.3 million in FY2018, up almost 10% from S$317.6 million in FY2017.

A final dividend of S$0.15 per share was declared, a 15.4% increase from S$0.13 per share dished out a year ago. Total dividend for FY2018 was S$0.30 per share, up 7.1% from S$0.28 per share one year back.

Loh Boon Chye, chief executive of Singapore Exchange, commented on the latest results:

“FY2018 was a record milestone in our financial performance as we achieved our highest revenue since listing in 2000 and the highest profit in five years. All three core businesses registered higher revenues. Our securities daily average traded value (SDAV) hit a five-year high, with the number of bond listings and derivatives trading volumes reaching record highs.”

Dividend policy

Singapore Exchange has revised its dividend policy. From FY2019, the dividend policy will be based on an absolute amount, instead of being based on a percentage of net profit. The previous dividend policy stated no less than 80% of the annual net profit after tax or 20 cents per share, whichever is higher, would be paid out as dividend.

The company will pay a higher dividend of 7.5 cents per share quarterly, starting from the first quarter of FY2019. The exchange said that this “is an increase of 2.5 cents per share and shareholders will receive their dividends earlier in the financial year, compared to previous years”.

FY2018’s dividend payment of 30 cents per share equates to around S$321 million in all, which is well-covered by both its net profit and free cash flow. On a longer-term basis, as long as earnings continue to improve, the 30 cents dividend would be sustainable.

The charts below show the earnings and dividend per share trends over the past five financial years:Source: Singapore Exchange FY2018 analyst and media briefing presentation

Looking into the future

As for its outlook, Singapore Exchange said:

“Looking forward, the prospect of escalating trade tensions and moderating global growth may result in higher market volatility, and in turn, greater demand for risk management solutions. We will continue to support our customers in managing their risks across different asset classes through our suite of products, and introduce new derivatives tools such as FlexC FX futures and enhanced Titan OTC Pro platform in the year ahead. Our FX derivatives business continues to grow strongly and now represents 5% of total financials and commodities derivatives gross revenues. We expect this business to contribute positively to net profit in the next few years.

Cementing our position as a multi-asset exchange remains key to our strategy, together with growing our international presence and widening our partnerships and networks. The introduction of new equities products and services, enhancement of SGX Bond Pro, expansion of our steel value chain and development of new data business capabilities, will all play a part towards fulfilling this strategy in FY2019.

We also see an opportunity to develop a digital marketplace in the global freight industry, building on the strengths of Baltic Exchange and our commodity franchise.”

The Foolish takeaway

Singapore Exchange had a record FY2018. With its strong balance sheet and further opportunities to grow its business, it should continue doing well in the years ahead. At its current price of S$7.44, the company is selling at 22 times its trailing earnings and has a dividend yield of 4%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange Limited. Motley Fool Singapore contributor Sudhan P owns shares in Singapore Exchange Limited.