Stonegate Updates Coverage on NZX Limited (NZSE: NZX) Q4 2023

DALLAS, TX -- February 26th, 2024 --  NZX Limited (NZSE: NZX): Stonegate Capital Partners updates their coverage on NZX Limited (NZSE: NZX).

COMPANY UPDATES

• Quarterly Results: NZX reported revenue, adj EBITDA, and adj EPS of $54.4M, $18.9M, and $6.58, respectively. This compares to our estimates of $53.1M, $19.9M, and $6.86. Topline outperformance was due to strong results in the dairy derivatives segment and wealth tech segments. This was moderated by lower GPM than expected from weaker than forecasted margins in the Funds segment.
• Markets: Capital listed and raised in the year totaled $14.2B. While this is a y/y decrease, we attribute this to the current market environment and expect NZX to improve when the market improves. The Company also recorded $33.8B worth of traded values in the secondary market. Information services revenue totaled $19.7M in the year for a CAGR of 7.5% since 2018. NZX also traded 578K dairy derivative lots in the year.
• Smartshares: Smartshares ended the year with FUM of $10.98B, which is up 32.9% from 2H22. FUM grew from the QuayStreet acquisition, positive cashflow, and positive market returns by $1,570M, $136M, and $958M respectively. The Company expects to have QuayStreet fully integrated by 4Q24. This along with positive macro drivers like the KiwiSaver growth potential gives us confidence in NZX’s ability to continue growing its FUM.
• Wealth Technology: Wealth tech ended the half with FUA of $11.54B, which is up 15.8% from 2H22. This has led to $7.1M in annual recuring revenues (“ARR”) as of year end 2023. Growth was in part driven by onboarding 12 new clients onto the platform as well as the initial tranche of a significant SaaS only client. Additionally, the Company is currently onboarding an additional 7 custody clients. The Wealth Tech segment is forecasted to be cashflow positive by the end of 2024.
• Financial Position: The Company maintains a strong balance sheet with $24.7M in cash and $117.4M in equity. When combined, cash and equity account for $0.41 per share, equal to 41% of the share price. NZX also announced a 3.1 cents 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 through 2024.
• Updated Guidance: NZX has set its full year 2024 EBITDA guidance in a range of 40.0M to $44.5M. We note that NZX reached the high end of its FY23 guidance. Following the strong FY23 results we believe the Company will perform slightly above the midpoint of this guidance. This is in large part due to the strong results seen in the dairy derivatives 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 2025E Net Income to arrive at a valuation range of $1.19 to $1.47 with a mid-point of $1.33. Our DCF analysis produces a valuation range of $1.26 to $1.49 with a mid-point of $1.36. Our EV/EBITDA valuation results in a range of $1.27 to $1.55 with a mid-point of $1.41. Lastly, we note that NZX is the only company in the comp set with a BV/Share value below $1.0.