January 30, 2008 / 6:18 PM / 10 years ago

TSX Group earnings drop on tax-asset hit

TORONTO (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 $30.4 million, or 45 cents a share, for the three months ended December 31. That compares with earnings of $35.1 million, or 51 cents a share, in the same period a year earlier.

Before the tax-asset impact, earnings were 65 cents a share, up from 53 cents, the company said.

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

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

Cash flow rose to $53.2 million from $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 $1.3 billion when it was unveiled in December but has since fallen to about $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 cents to close at $45.90 on the Toronto Stock Exchange.

Reporting by Wojtek Dabrowski; Editing by Rob Wilson

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