NZX operates a monopoly-like business that retains the ability to at least grow in line with New Zealand GDP. However, the past five years has seen operating margin decline by over 50%. The Board has pulled one of the two levers available to them and replaced the CEO. The new CEO now has the opportunity to clearly articulate a strategy for improving returns and profitably growing the business over the long term.
We believe some or all of the following initiatives could unlock value in NZX:
Immediate remediation of the cost base to return the business to its prior mid-30’s operating margins;
Review strategic alternatives for the fund management business including the potential sale of the business to a specialist global player;
Handover regulatory functions of the markets business to the FMA;
Develop a credible plan with growth options for the business or become a “utility”;
Return NZD $20 million to NZD $30 million in capital to shareholders via a tax-efficient buyback at present prices; and
Further broaden board member skill-sets with international investing/exchange experience as well as business development skills.
We encourage all interested to read our full report on the NZX here.