Australia's ASX H1 net up 2.8 percent, eyes SGX deal

ASX Group Ltd (ASX.AX) eked out a small first-half profit growth, but focus was squarely on the completion of Singapore Exchange's (SGXL.SI) $7.9 billion bid for the Australian bourse operator, a move to help the bourses fight growing competition.

Both companies are teaming up to reap the benefits of cost cuts, take on growing pressure from alternative trading platforms and not be left behind in a wave of stock exchange mergers globally.

However, the first major consolidation of Asia-Pacific exchanges faces regulatory hurdles, including getting Australia's parliament to lift a 15 percent ownership cap on the ASX and approval from the country's Foreign Investment Review Board (FIRB).

The result demonstrates the strong cashflow capability of the business, and on a standalone basis it's still got embedded value, Mark Nathan, portfolio manager at Arnhem Investment Management said on Thursday.

The merger's got scale benefits which will benefit everybody involved, and it's still in the best interests of shareholders and the investing public.

ASX has been investing in new technology and platforms as it positions itself for the onset of competition, with electronic platform provider Chi-X Australia being granted an in-principle market license, and targeting a launch date during 2011.

By 0420 GMT, ASX shares were off 0.3 pct at A$38.6, well below the implied offer price of A$48, indicating the bid still faces challenges.

A wave of tie-ups and mergers has gripped the sector in the past two weeks, including a $10.2 billion takeover of NYSE Euronext (NYX.N) by Deutsche Boerse AG (DB1Gn.DE) unveiled on Tuesday. The merged entity could create a more attractive partner for Asian exchange operators, the companies said.

ASX's net profit before one-offs was A$175.5 million ($176.1 million) for the six months to December, against A$170.6 million a year ago. This was roughly in line with the average forecast of A$172 million from 11 analysts surveyed by Thomson Reuters I/B/E/S.

Adjusted for one-off items, net profit was A$172 million.

The catalyst for the stock at the moment is not so much earnings as what the merger is going to look like, if it's going to get through the regulatory hurdles, said Cameron Peacock, an analyst at IG Markets.

ASX's group operating revenue edged up 1.2 percent to A$306.4 million as listing activity was higher but the amount of capital raising fell sharply due to the healthier state of corporate balance sheets.

ASX Managing Director Robert Elstone told an analysts briefing after the results that the logic behind the ASX-SGX deal was the same as the other big mergers currently in play.

Some of it's about bulking up, some of it's about synergies and some of it's about diversification, Elstone said.

We sit out the global dance at our peril.

ASX did not provide a forecast for the year to June 2011, with the average of analysts' expectations A$348.2.

ASX's results followed a disappointing second-quarter result from SGX on higher costs from the takeover bid and investments in new technology.

On Tuesday, ASX and SGX unveiled changes to the bid which would see greater board representation from ASX, while pledging to preserve key functions and staff, in an attempt to allay fears the government may block a takeover as not being in Australia's best interest.