PHILLIP Securities has downgraded Singapore Exchange SGX: S68 +0.51% (SGX) to " neutral" from " accumulate" , as most positives have been priced in.

 

However, the research house has raised its target price to S$11.95, from S$11.25 previously, on the back of " stronger growth prospects" following SGX' s acquisition of single-source and direct-to-market foreign exchange (FX) trading platform MaxxTrader.

 

The higher target price is pegged to a price-to-earnings ratio of 25 times, and implies an estimated dividend yield of 2.7 per cent for FY2021.

 

The MaxxTrader acquisition is part of SGX' s plans to build an integrated FX ecosystem and marketplace facilitating global access to over-the-counter, or OTC, trading and on-exchange currency derivatives.

 

The addition of MaxxTrader will broaden SGX' s customer base for both the buy-side and sell-side to over 200 institutional clients, including banks, hedge funds and broker-dealers.

 

The way senior research analyst Terence Chua sees it, the acquisition will further scale up FX as a pillar of growth for the bourse operator.

 

" We see FX as a core, fast-growing pillar in SGX' s multi-asset strategy. The deal follows SGX' s full acquisition of cloud-based FX trading platform BidFX last year. The two purchases have paved the way for the bourse to become Asia' s largest one-stop venue for international FX OTC and futures participants," Mr Chua said in a report on Sunday.

 

" As a single-source and direct-to-market FX trading platform, MaxxTrader is expected to advance SGX' s ability to offer end-to-end FX platforms and solutions," he added. " It will help the bourse achieve scale and size."

 

SGX will acquire MaxxTrader from multi-asset execution and order management systems provider FlexTrade Systems for a cash consideration of US$125 million, which will be funded by external borrowings.

 

The acquisition will be accretive to adjusted earnings per share from the first year.

 

" With continued fast growth in the global OTC FX market, MaxxTrader' s average daily volume is expected to grow at more than 25 per cent in the medium term. This implies its revenue growth could accelerate from its historical 14 to 15 per cent compound annual growth rate in the last five years," Mr Chua said.

 

THE acquisition of single-source and direct-to-market FX trading platform MaxxTrader will further cement foreign exchange (FX) as a core pillar of growth for the Singapore Exchange (SGX) under its multi-asset strategy, and allow the bourse operator to achieve scale and size.

 

The latest acquisition will broaden SGX' s customer base for both the buy-side and sell-side to over 200 institutional clients, including banks, hedge funds and broker-dealers, and will allow SGX to leverage MaxxTrader' s technology to set up an " end-to-end" FX electronic communications network (ECN).

 

MaxxTrader has an average daily volume (ADV) of over US$17 billion. Following the acquisition, the ADV of the combined FX franchise will be more than US$75 billion.

 

In a call with reporters to discuss the acquisition, SGX chief executive Loh Boon Chye said the move would help the company gain a competitive advantage in the FX over-the-counter (OTC) space and allow clients to access more products and trade easily.

 

It will also pave the way for SGX to become Asia' s largest one-stop venue for international FX OTC and futures participants, he added.

 

" Currencies is a very promising space for us," said Mr Loh. " With the acquisition, we' re off to a strong start of a new financial year as we capture opportunities to scale and grow our multi-asset offerings.

 

" Our next step is to offer clients a full suite of FX futures and OTC solutions, by building a primary FX OTC marketplace anchored in Singapore."

 

SGX will acquire MaxxTrader from multi-asset execution and order management systems provider FlexTrade Systems for a cash consideration of US$125 million.

 

The acquisition will be accretive to adjusted earnings per share (EPS) from the first year. SGX' s adjusted EPS figures account for one-off items and the amortisation of intangible assets, and reflect the company' s " underlying performance" .

 

Up to US$35 million may also be paid to FlexTrade Systems if certain revenue targets for calendar years 2021 and 2022 are met by MaxxTrader. There will also be a further equity or loan injection of US$5 million for general corporate purpose and net working capital, which will be decided on at a later stage.

 

The acquisition, which will be funded by external borrowings, is expected to be completed by December.

 

With regard to how much of a boost to EPS figures the acquisition will provide, SGX' s deputy chief financial officer Ng Yao Loong said SGX would be better able to give more details during the announcement of its financial results in early August.

 

As for predictions on what might be the biggest products that will trade on the OTC marketplace, it is expected that G10 currency offerings will surpass those of Asian currencies. However, SGX said it is looking to provide differentiated access across the OTC space for Asia FX.

 

The latest acquisition follows SGX' s move to fully acquire cloud-based FX trading platform BidFX in June last year. SGX paid US$128 million in cash for the remaining 80 per cent stake in BidFX after acquiring an initial 20 per cent stake in March 2019 in a move to bring together FX futures with OTC markets.

 

These acquisitions, said Mr Loh, mean that SGX is now " well poised to grow further internationally" , with the company still looking at the possibility of acquiring different assets to improve the end-to-end efficiency for clients.

 

With the latest acquisition, SGX will have a combined FX team of some 180 employees across the US, UK, Singapore, India, Hong Kong, Tokyo, Australia, Milan and Geneva. It will also be able to leverage technology and research and development capabilities in Singapore and India to drive product development.