(May 26): ASX Ltd shares tumbled the most in more than a decade after the embattled exchange operator increased its capital spending guidance as it upgrades critical market infrastructure.
The stock fell as much as 13%, the most since August 2012, after ASX boosted its capital expenditure target to between A$180 million and A$200 million (US$129 million to US$143 million or $164.77 million to $183.08 million) for the financial year starting July 1, according to a filing Tuesday. It previously saw capex in the range of A$160 million to A$180 million.
Australia’s bourse is in the middle of a strategy reset as it seeks to regain the confidence of officials and stakeholders after years of technical issues and delays. It has agreed to overhaul its technological upgrade programme as part of a series of commitments following a probe by the regulator.
The company also said its total expense growth would rise between 18% and 21% next financial year, and forecast capex of A$170 million to A$190 million for the following year.
“The scale of the cost growth and increased capital expenditure guidance will rightly raise questions for investors about execution risk, cost discipline, returns on investment and impact on dividends,” said Rachel Waterhouse, chief executive officer at the Australian Shareholders’ Association.
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Investors have steadily shunned the exchange as concerns on governance, risk management and costs related to its technology modernisation pile up. Its stock has declined 27% over the last 12 months, making it the worst performer among a Bloomberg gauge of global exchanges.
Higher costs add another challenge for incoming chief executive officer Anthony Attia to contend with when he takes over in September. Attia inherits a firm that has been plagued by delays in its efforts to update its markets infrastructure, most notably its ageing clearing and settlement systems. That upgrade is expected to be completed in 2029.
ASX was already forced to lower its payout ratio to between 75% and 85% of underlying net income at its interim results, and said its dividend reinvestment plan will be discounted for at least the next three payments. The changes came after the regulator imposed a capital charge of A$150 million to reflect its increased risk profile.
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The firm must respond to the regulator’s mandate to reset its technological upgrade programme, “so it is good to see they are ensuring they have the money to deliver”, said Maria Lykouras, chief executive officer at the Stockbrokers and Investment Advisers Association.
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