Stonegate Initiates Coverage on NZX Limited (NZSE: NZX)

DALLAS, TX -- September 5th, 2023 --  NZX Limited (NZSE: NZX): Stonegate Capital Partners initiates their coverage onNZX Limited (NZSE: NZX). The full report can be accessed by clicking on the following link: NZX Initiation Report

COMPANY UPDATES

• 1H23 Results: NZX reported revenue, adj EBITDA, and adj EPS of $54.0M, $20.0M, and $6.97, respectively. This compares to our estimates of $48.4M, $17.2M, and $6.49. Topline outperformance and GPM outperformance were due to strong results in the funds management segment, which was $5.2M above our expectations with a GPM outperformance of 963bps.
• Markets: Markets saw 14 new debt issues in 1H23 and the percentage of green bonds listed increased to 30.14% of all outstanding debt issuance. The Company also recorded $18.0B worth of traded values in the secondary market. Information services revenue was $10.4M, an increase of 15.4% since 2022. NZX also traded 260K dairy derivative lots.
• Smartshares: Smartshares ended the half with FUM of $10.7B, which is up 29.1% from 2H22. ETF trading accounted for 6.1% of traded value in 1H23, up from 5.7% at the end of 2022. The Company announced 5 new ETFs in the half. Target FUM growth remains at 14% per year, with acquisitions such as ASB SMT and QuayStreet Asset Management helping to drive this growth.
• Wealth Technology: Wealth tech ended the half with FUA of $10.8B, which is up 8.7% from 2H22. Growth was in part driven by onboarding 16 new clients onto the platform as well as the initial tranche of a significant SaaS only client. The wealth tech segment is forecasted to be cashflow breakeven by the end of 2024. Target FUA remains between $35B to $50B by the end of 2024.
• Financial Position: The Company maintains a strong balance sheet with $12.5M in cash and $118.7M in equity. When combined, cash and equity account for $0.41 per share, equal to 35% of the share price. NZX also announced a $0.03 per share dividend. Capital expenditures are still above historical averages due to the continued product development and new client migration activity. This is expected to continue over the balance of 2023 and into 2024.
• Updated Guidance: NZX has reiterated their full year 2023 EBITDA guidance in a range of $36.0M to $40.5M. Following the very strong 1H23 results we believe the Company will perform towards the high end of this guidance. This is in large part due to the strong margins seen in the markets segment and the recuring nature of the Wealth Tech and Smartshares segments.
• Valuation: We use a Dividend Discount Model, DCF Model and EV/EBITDA comp analysis to guide our valuation. Our Dividend Discount uses the NZX stated range of payout ratios on 2024E Net Income to arrive at a valuation range of $1.14 to $1.56 with a mid-point of $1.35. Our DCF analysis produces a valuation range of $1.23 to $1.47 with a mid-point of $1.34. Our EV/EBITDA valuation results in a range of $1.25 to $1.52 with a mid-point of $1.39. Lastly, we note that NZX is the only company in the comp set with a BV/Share value below $1.0.