As we move into 2025, TMX Group (TSX: X) stands out with a recent strong performance in key segments. Notably in derivatives and analytics, but with some rising operational costs. Today, let’s break down TMX Group’s latest earnings, performance, future outlook, and decide if it’s a buy, hold, or sell.
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Into earnings
In its third-quarter (Q3) 2024 report, TMX Group showed solid revenue growth, increasing by 23% year over year. This growth stemmed largely from its Global Solutions, Insights, and Analytics (GSIA) segment, which reported an impressive 41% increase. However, despite a 17% rise in adjusted diluted earnings per share, diluted earnings per share (EPS) decreased by 3% due to increased expenses. This suggests that while growth is strong, profitability challenges remain due to high expenses.
The GSIA and TMX Tradeport segments performed well, with TMX Tradeport seeing a 22% revenue boost. However, the capital formation segment, excluding contributions from Newsfile, faced a slight dip due to fewer additional listing fees. The equities and fixed income trading segment also saw a 2% decrease in market share for TSX-listed issues, indicating some competitive challenges.
TMX Group has maintained a healthy balance sheet, with over $518 million in cash as of September 30, 2024. The debt-to-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio has decreased to three times from 3.6 earlier in the year, reflecting a reduction in leverage. This strong cash position and manageable debt levels give TMX flexibility to invest in growth opportunities or to weather any upcoming market uncertainties.
Current benefits
TMX Group offers an attractive forward dividend yield of 1.71% with a recent quarterly dividend of $0.19 per share. The payout ratio of around 50% suggests the dividend is sustainable, providing shareholders with consistent income. The company’s history of dividend increases makes it appealing to income-focused investors who appreciate stable payouts
The current valuation places TMX Group’s trailing price-to-earnings (P/E) ratio at 29.96, with a forward P/E of 23.36, showing that investors anticipate future growth. Compared to its peers, TMX’s P/E is somewhat elevated, thus hinting that investors are confident in its growth prospects but could be wary of whether the growth rate justifies the premium.
Future growth
TMX Group faces potential impacts from regulatory changes in the U.S., such as the SEC’s proposal to reduce access fee caps. Although not directly Canadian, such U.S. policies can impact cross-border trading volumes. The company’s proactive approach in expanding segments like analytics may buffer some regulatory challenges, but it’s an area to watch closely.
Furthermore, TMX Group’s focus on growing the derivatives trading and analytics segments is promising. The company noted that market-making incentives would roll off soon, likely contributing to revenue in the near term. This strategy aligns with the ongoing industry shift toward analytics and data solutions, which could make TMX more resilient and growth-focused.
Many analysts view TMX as a steady, growth-oriented play, with a moderate consensus of “Hold.” While the company’s growth initiatives are exciting, analysts express caution over rising expenses and competitive pressures.
Bottom line
So, where does all this leave us investors? TMX Group’s blend of growth and stability positions it as a “Hold” for 2025. Its strong performance in high-growth segments like GSIA is encouraging, yet increased operational costs and market pressures keep the stock from being a clear “Buy.” For investors seeking steady dividends and a foothold in Canadian finance, TMX could be a good fit to hold in a balanced portfolio while monitoring for further growth or cost-control developments.
