January 30, 2008 / 6:43 PM / in 10 years

UPDATE 3-TSX Group earnings drop on tax-asset hit

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By Wojtek Dabrowski

TORONTO, Jan 30 (Reuters) - TSX Group Inc (X.TO) posted a 13 percent drop in fourth-quarter earnings on Wednesday, mostly because of a reduction in the value of a tax asset, the operator of the Toronto Stock Exchange said on Wednesday.

TSX, which is buying the Montreal Exchange MXX.TO, reported net income of C$30.4 million, or 45 Canadian cents a share, for the three months ended Dec. 31. That compares with earnings of C$35.1 million, or 51 Canadian cents a share, in the same period a year earlier.

Before the tax-asset impact, earnings were 65 Canadian cents a share, up from 53 Canadian cents, the company said. It added the future tax asset was reduced — and its income-tax expense increased — mostly because of cuts to federal corporate income tax rates enacted late last year.

Analysts expected TSX, which also runs the small-cap TSX Venture Exchange, to report earnings of 65 Canadian cents a share before one-time items, according to Reuters Estimates.

Revenue rose 22 percent to C$111.2 million as the company brought in more money from its issuer services, trading and market data businesses.

Cash flow rose to C$53.2 million from C$38.2 million a year earlier.

“It’s sort of a business-as-usual quarter for TSX,” said Jeff Fenwick, an analyst at Cormark Securities in Toronto. “Overall, I think it looks pretty good, there was good strength across all of their lines of business.”

TSX is in the process of buying the Montreal Exchange in a cash and stock deal that aims to create a dominant Canadian stock and derivatives exchange that can fend off a foreign takeover.

The deal was valued at C$1.3 billion when it was unveiled in December but has since fallen to about C$1.1 billion because of a drop in TSX’s share price.

“We are progressing as planned and we are continuing to target completion of the transaction in this quarter,” interim co-CEO Michael Ptasznik said during a conference call with analysts.

He also said the company’s board is seeking “an appropriate successor” to former Chief Executive Richard Nesbitt, who announced earlier this month he would leave the company. Ptasznik is sharing the top job with Rik Parkhill, another TSX executive, in the meantime.

The stock exchange operator also faces competition at home from the start-up of a myriad of alternative equity trading systems, most notably the planned launch in September of Alpha Trading Systems.

TSX shares rose 25 Canadian cents to close at C$45.90 on the Toronto Stock Exchange.

$1=$0.99 Canadian Reporting by Wojtek Dabrowski; Editing by Rob Wilson

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