Wednesday, January 2, 2013

TMX Group Ltd

On my other blog I am today writing about the US Fiscal Cliff...continue...

I do not own this stock of TMX Group Ltd (TSX-X, OTC-TMXXF). I have not reviewed this stock for a while because it was supposed to be involved in a takeover. However, it would seem that TMX Group Inc. was taken over the TMX Group Ltd and shareholders got a share trade of 1 for 1. However this was after TMX Group Ltd (formerly Maple Group) bought 80% of the outstanding shares of TMX Group Inc.

I am doing a short report on this stock. Basically, I track too many stocks to do two reports on each stock. Also, there is not much to say on this stock. It is hard to tell how much continuity there is between the old TMX Group Inc. and the current TMX Group Ltd. companies.

I would not invest in this company. First of all the debt ratios have never been great for this company, especially the Liquidity Ratio. I do not like companies with low Liquidity Ratios, especially when they do not have strong and stable cash flows. (The 5 year median Liquidity Ratio with cash flow after dividends is just 1.16. The Ratio just is not high enough.)

With the change to TMX Group Ltd., the debt ratios have not improved. The Liquidity Ratio for the 3rd quarter is 1.07 a rather low value. The Debt Ratio is also low at just 1.42. I like to see these ratios at 1.50 or higher.

Also, with the 3rd quarter, I notice that goodwill and intangible assets are 180% of the market cap of the stock. This is not good.

Reading the 3rd quarterly report, they seem to be starting the accounting all over again from the time of exchange on September 14th. Where they are at may become clearer by the end of financial year of 2012 reporting. If not, I might just drop tracking this stock.

The analysts' recommendations for this stock are Strong Buy, Buy, Hold and Underperform and Sell. In other words they are all over the place. The consensus recommendations would be a Hold. Most recommendations are a Hold. (See my site for information on analyst ratings.)

The 12 months stock price consensus is $51.50. Since the stock price is currently $51.00 this implies return of only dividends over the next year.

It would seem that analysts do not see much growth in stock price over the next 12 months and therefore give this stock a Hold recommendation. One analyst said the business is going nowhere and is not growing. In fact new listings are shrinking volume is going down. There is an articleFinancial Post about an analyst downgrade on this stock because of lower trading volumes.

There is also an article on Stockhouse which talks about the integration of Alpha Trading and CDS businesses just bought and 3rd quarter results. See Stockhouse.

I do not like the debt ratios, although I must say that growth rates (revenues, earnings, cash flow, and book value) are fine. The Goodwill and intangible assets are 180% of market cap. This is not good. Price could be on the high side as the current dividend yield is 3.15% and the 5 year median dividend yield is 4.17%, a value also 25% higher.

I just came across “How to health-check a dividend-paying company” as one subject of the Daily Buy-Sell advisor . This article talks about why debt ratios are important.

TMX Group Ltd. operates two national stock exchanges, Toronto Stock Exchange serving the senior equity market and TSX Venture Exchange serving the public venture equity market, Natural Gas Exchange (NGX), a North American exchange for the trading and clearing of natural gas and electricity contracts and Shorcan Brokers Limited, a fixed income inter-dealer broker. Its web site is here TMX. See my spreadsheet at x.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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