Data And Analytics Expansion Will Increase Product Offerings By 2025

Key Takeaways

• Expansion in data and analytics aims to diversify offerings and boost non-trading revenue, supporting overall growth.
  
• Infrastructure investments to enhance market connectivity are set to increase trading volume and revenue.
  
• Political, economic, and operational challenges, including market volatility and strategic project risks, may impact JSE's revenue stability, margins, and diversification potential.

Catalysts

Operates as a multi-asset class stock exchange in South Africa.

• The JSE's strategic focus on expanding its data and analytics business, particularly with the Information Services strategy, aims to significantly increase its product offerings in 2025. This expansion will cater to major asset classes and is likely to boost non-trading revenue, supporting overall revenue growth.
  
• The modernization of the BDA (Broker-Dealer Accounting) system, a multi-year project, is expected to enhance trading ecosystem efficiency and cost-effectiveness by 2027. This operational improvement could lead to increased cost efficiencies, positively impacting net margins.
  
• The JSE's continued investment in infrastructure, including projects like Colo 2.0 and JSE FIX Hub, is designed to improve market connectivity and access, which can attract more market participants and trading volume, boosting trading revenue.
  
• Increased primary market revenue, driven by higher annual listing fees and escalated secondary capital raises, signals strong capital market activity. Further growth in primary market revenue is expected to bolster the JSE's earnings performance.
  
• The resiliency of non-trading income, which has grown significantly since 2019, provides a stable earnings base. The growth and diversification in non-trading income contribute to strong earnings resilience, even in volatile trading conditions.

JSE Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming JSE's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.7% today to 30.9% in 3 years time.
• Analysts expect earnings to reach ZAR 1.1 billion (and earnings per share of ZAR 13.79) by about May 2028, up from ZAR 917.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, up from 11.3x today. This future PE is greater than the current PE for the ZA Capital Markets industry at 6.6x.
• Analysts expect the number of shares outstanding to grow by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 18.2%, as per the Simply Wall St company report.

JSE Future Earnings Per Share Growth

Risks

• The fluctuating South African market activities, such as the 24% decline in value traded in Q1 2024, could create volatility in JSE's revenue streams, impacting both revenue and earnings.
  
• Political and macroeconomic challenges, including tariff concerns and South Africa's decreasing weight in certain indices, could affect investor sentiment and lead to reduced revenues or lower net margins.
  
• A heavy focus on non-trading income, which has grown significantly, presents risks if market data fees or other non-core revenues decline, impacting overall earnings stability.
  
• JSE faces operational risks relating to the BDA modernization project and other strategic investments, which could lead to increased costs and strain on capital if not executed efficiently, potentially impacting net margins.
  
• Decreasing retail investor engagement, indicated by the low retail ownership of sub-10%, may limit revenue growth potential and impede JSE's diversification objectives.

Valuation

• The analysts have a consensus price target of ZAR143.55 for JSE based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ZAR3.6 billion, earnings will come to ZAR1.1 billion, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 18.2%.
• Given the current share price of ZAR127.29, the analyst price target of ZAR143.55 is 11.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.