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On Friday, Goldman Sachs analyst Gurpreet Singh Sahi changed the outlook for Singapore Exchange (SGX:SP) (OTC: OTC:SPXCY), upgrading the stock from Sell to Neutral and increasing the price target to SGD13.00, up from SGD10.80. The exchange operator, currently valued at $10.23 billion, has demonstrated strong financial health according to InvestingPro analysis, with an impressive 87.83% gross profit margin. The upgrade reflects the analyst's view that Singapore Exchange's diverse business model is an asset in the current volatile market, with over 60% of its revenue being less sensitive to local stock market fluctuations. In addition, SGX boasts a varied derivatives product portfolio.
The analyst pointed out that SGX's earnings growth has historically been more resilient than that of its peers, such as HKEX and JPX, during bear markets. This resilience is reflected in the company's consistent performance, with InvestingPro data showing 8.76% revenue growth in the last twelve months and a 25-year track record of maintaining dividend payments. The expectation of sustained earnings growth in the second half of fiscal year 2025 before facing growth challenges in fiscal year 2026 also contributed to the rating upgrade. Strong month-to-date daily derivatives average volume (DDAV) stemming from hedging demands in the volatile market is anticipated to fuel a 17% year-over-year increase in EBITDA for the second half of fiscal year 2025.
Despite potential challenges in fiscal year 2026 due to a high base effect, SGX is expected to achieve high single-digit forward three-year compound annual growth rates (CAGR) in both top-line revenue and EBITDA. This forecast is supported by projected CAGRs of 14% in DDAV and 5% in cash average daily turnover (ADT).
In terms of valuation, SGX's stock is trading at 21 times forward price-to-earnings (P/E), consistent with the average since 2013. Current InvestingPro data shows a P/E ratio of 20.89x and a PEG ratio of 1.14x, suggesting the stock is trading at a premium relative to its near-term earnings growth potential. The three-year forward price/earnings to growth (PEG) ratio stands at 2.4 times, which is below the median of peers at 2.8 times. However, the analyst noted that SGX's P/E premium to the Straits Times Index (STI) is approximately 90%, nearing its historical peak. For more detailed valuation insights and additional financial metrics, investors can access over 30 premium indicators through InvestingPro. The bull-bear case analysis conducted by the analyst suggests a largely balanced risk-reward scenario for the exchange's stock.
In other recent news, UBS has adjusted its stance on Singapore Exchange, upgrading the stock from Sell to Neutral and raising the price target to SGD12.30 from the previous SGD11.80. This change comes after a notable decline in Singapore Exchange's share value. UBS analyst Aakash Rawat cited that the recent correction in the share price has brought valuations to a more reasonable level, now trading at 20 times forward Price to Earnings (P/E), down from 25 times P/E earlier this year. The adjustment also considers increased market volatility, which is expected to lead to higher trading volumes in securities and derivatives. Rawat mentioned that these factors have led UBS to raise its earnings per share estimates for Singapore Exchange by 2%. This revision reflects slightly better-than-expected market statistics for the first quarter of the calendar year 2025. The new price target is based on a Discounted Dividend Model, aligning with the three-year average P/E ratio. UBS believes this approach is more appropriate given the current market conditions.
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