TMX posts higher profit of $19.2M in Q3 despite softness in capital markets

TORONTO – TMX Group Ltd. (TSX:X) posted an increased profit in the third quarter as lower trading volumes and market uncertainty were offset by cost savings from a major reorganization.

“It’s clear that the Canadian capital markets continue to be sluggish, particularly in equities financing and trading. That’s the reality we face at the moment,” CEO Thomas Kloet said during a conference call with analysts Thursday.

“We are confident that the tide will turn in time.”

Kloet said it was looking like more equity was beginning to flow into the marketplace, adding that high-profile initial public offerings, like Twitter on the New York Stock Exchange, may also help overall sentiment.

“There’s obviously a high-profile IPO going on on another exchange today that I think everybody knows about, and sentiments from those kinds of things have long tails,” he said.

The owner of Canada’s largest financial markets posted a $19.2 million profit in the third quarter, up nearly $4 million compared with the same time last year, as revenue rose to $165.3 million from $113.4 million in the third quarter of 2012, when TMX acquired two companies in a related transaction.

TMX’s diluted earnings per share for the third quarter of 2013 amounted to 35 cents, which was down from 53 cents per share last year when there were half as many TMX shares outstanding.

Adjusted diluted earnings per share were 75 cents in the third quarter, however, compared with the analyst estimate of 62 cents per share.

The adjusted earnings excluded 22 cents per share related to refinancing expenses and about 18 cents per share related to last year’s reorganization of TMX in a deal with the Maple Group.

The deal changed the ownership structure of TMX Group, with Maple Group members owning a majority of its stock. TMX also acquired Canadian Depository for Securities Ltd. and the Alpha trading business.

TMX Group, which also owns the Montreal derivatives exchange and the TSX Venture Exchange, has been dealing with market volatility and been hit by changes in commodity prices.

It’s also facing possible competition from Aequitas Innovations Inc., a new proposed stock exchange backed the Royal Bank of Canada (TSX:RY), with the support of several financial heavyweights.

Aequitas is working on filing for regulatory approval by the end of this year, and could be up and running by the end of 2014 if it is given the go-ahead. It’s looking at putting constraints on high-frequency trading and offering services for a lower cost.

Kloet said it was too early to say what headwinds the new exchange could cause, calling it simply “another competitor in an already highly competitive business.”

“Some of the things they want to do are inconsistent with some of the core elements of the national instruments. We have to see how the regulatory structure is going to work its way through that,” he said.

“We don’t really know what the end core offering is going to look like.”

Shares in TMX Group were trading at $47.94 at midday Thursday, up almost two per cent.