TMX Group owns and operates trading exchanges in Canada. It provides listing markets, trading markets, clearing facilities, depository services, technology solutions, data products, and other services to the global financial community.
TMX is No.1 by the number of listed companies in global growth capital marketplaces. It is also the fourth largest exchange group by the number of international IPOs and new listings.
TMX’s key operations include Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange, The Canadian Depository for Securities, Montreal Exchange, Canadian Derivatives Clearing Corporation, and Trayport.
The group caters to clients in Canada, North America, and also around the world. It currently has more than 3,200 listed securities issuers. TMX’s robust pipeline has supported the creation of a global platform.
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Revenue Growth & Market Exposure
TMX’s revenue includes revenues from Capital Formation (24% revenues), Equities and Fixed Income Trading and Clearing (27%), Derivatives Trading and Clearing (15%), and Global Solutions, Insights, and Analytics (34%) businesses. It plays a critical role in raising capital for companies around the world.
Over the years, TMX has transformed from a regional infrastructure provider to a global technology solutions provider. The acquisition of Trayport back in 2017 accelerated this transformation. The company also disposed of many of its non-core businesses during 2016 and 2017.
Recurring revenue now accounts for more than 50% of total revenues increasing from 40% in 2016. The company continues to focus on diversifying its revenue streams and shift to more recurring revenue sources – a tollbooth stock characteristic. The Group’s overall revenues have grown at a rate of ~9% CAGR in the last three years. TMX is highly diversified by product offerings and geographies. Its revenue from outside of Canada increased to 33% from less than 30% in 2016.
Its unique TSXV Ecosystem drives new listings and revenue growth. TMX Group benefits from a large and growing robust global pipeline of private companies. It engages growth companies, investors, and intermediaries across the capital markets ecosystem. Growth investors are looking to tap sector-specific non-financial data and TMX captured the opportunity with the launch of mining and cannabis indices.
TMX is now focusing on Phase two of modernizing its clearing platforms and expects to complete it in the second half of 2022.TMX witnessed increased trading and clearing volumes for cash equities markets on the back of rising retail trading activity. New listings were up 45% on TSX, and 57% on TSXV, compared with last year and there were 300 new listings in the last year.
The company announced an agreement to acquire AST Investor Services, Canada in September. This transaction is expected to accelerate TSX Trust’s growth, strengthen relationships with existing clients, and broaden the scope of its service offerings. TMX also agreed to acquire 100% of German-based Tradesignal, a leading producer of rule-based trading and technical chart analysis software. Strong focus on expanding its addressable market, innovation across client and transaction experience, and diversification should drive long-term revenue growth.
TMX is a Canadian Dividend Aristocrat having a track record of outperforming major North American indices. It sports an annual yield of more than 2% and a reasonable payout ratio of 52%. The company last raised its dividend by 6% and has grown it at a rate of 11%+ CAGR in the last five years.
TMX will continue its fast pace of organic growth as more securities list on its exchanges. Its streamlined operating model has supported revenue and earnings growth. The company expects to drive future growth on the back of potential business areas like Trayport, Derivatives, and Capital Formation. Derivatives trading is gaining momentum in Canada and also globally.
TMX is also expanding its existing international sales networks in foreign markets. The group is also well-positioned to capitalize on secular energy market trends with globalization and digitization of markets. The company made a breakthrough in the U.S. energy market with Trayport making an agreement with Nodal Exchange.
Growing global addressable markets and TMX’s ability to build new capabilities should facilitate long-term earnings growth. It is already a primary network for European wholesale energy markets and has been supporting the growth of global energy trading markets.
The TMX Group faces no significant competition in Canada. The company has strong organic and regulatory competitive barriers. TMX is a leader amongst Exchange groups. A complementary set of assets and a disciplined approach to cost management are its compelling competitive strengths.
The COVID-19 pandemic has had an unprecedented impact on the market and general economic conditions. However, TMX has been witnessing a positive shift in momentum in the Capital Formation business and high-profile IPOs, and new listings in mining, resources, and other innovative sectors.
TMX should benefit from increased financing activity on both its exchanges and improved valuations as markets recover fully. New listings should provide increasing annual recurring revenue, as listed firms pay annual fees to the exchange. Investments in core business systems and foundational infrastructure as well as client-centric product development position TMX well for long-term growth.