What’s Ahead For Singapore Exchange Limited (SGX:S68)?

Singapore Exchange Limited (SGX:S68), a S$8.07B mid-cap, is a capital market firm operating in an industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. Many aspects of banking and capital markets are being attacked by new competitors, whose key advantage is a leaner and technology-enabled operating model, allowing them to scale at a faster rate and meet changing consumer needs. Financial services analysts are forecasting for the entire industry, a positive double-digit growth of 15.27% in the upcoming year , and an enormous growth of 41.42% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Singapore stock market as a whole. Is the capital markets industry an attractive sector-play right now? Below, I will examine the sector growth prospects, and also determine whether Singapore Exchange is a laggard or leader relative to its financial sector peers. See our latest analysis for Singapore Exchange

What’s the catalyst for Singapore Exchange's sector growth?

The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the previous year, the industry saw growth in the teens, though still underperforming the wider Singapore stock market. Singapore Exchange is neither a lagger nor a leader, and has been growing in-line with its industry peers at around 10.09% in the prior year. However, analysts are not expecting this trend to continue, with future growth expected to be 7.16% compared to the wider financial sector growth hovering in the teens next year. As a future industry laggard in growth, Singapore Exchange may be a cheaper stock relative to its peers.

Is Singapore Exchange and the sector relatively cheap?

Capital markets companies are typically trading at a PE of 21.81x, above the broader Singapore stock market PE of 13.41x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 5.85% on equities compared to the market’s 7.45%. On the stock-level, Singapore Exchange is trading at a PE ratio of 22.04x, which is relatively in-line with the average capital markets stock. In terms of returns, Singapore Exchange generated 35.92% in the past year, which is 30.07% over the capital markets sector.

Next Steps:

If Singapore Exchange has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is a capital markets industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the financial sector. However, before you make a decision on the stock, I suggest you look at Singapore Exchange's fundamentals in order to build a holistic investment thesis.

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Historical Track Record: What has S68's performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Singapore Exchange? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.