UBS raises Singapore Exchange stock to neutral, ups target to SGD12.30

On Wednesday, UBS analyst Aakash Rawat upgraded Singapore Exchange (SGX:SP) (OTC: OTC:SPXCY), a $9.59 billion market cap company with a "GOOD" InvestingPro Financial Health score, from Sell to Neutral, adjusting the price target to SGD12.30, an increase from the previous SGD11.80. The adjustment follows a notable decline in the company's share value, which dropped approximately 8% over the past week and around 15% since its peak in February 2025.

Rawat explained that UBS's previous caution towards Singapore Exchange was primarily due to high valuations influenced by an overly optimistic market. He noted that while the ongoing equities market review is expected to be beneficial for SGX in the long term, the anticipated near-term earnings per share (EPS) impact seemed overly ambitious. According to InvestingPro data, the company maintains strong revenue growth of 8.76% and currently trades at a P/E ratio of 19.82x.

The analyst pointed out 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), compared to 25 times P/E in February 2025. He believes that these valuations are fair and balanced in the current market context.

Rawat also mentioned that the increased market volatility should favor SGX, as it is likely to lead to higher trading volumes in both securities and derivatives. This expectation has led UBS to raise its EPS estimates for SGX by 2%, taking into account the higher volumes and slightly better-than-expected market statistics for the first quarter of the calendar year 2025.

The upward revision of the price target to SGD12.30 is based on a Discounted Dividend Model (DDM) and reflects a P/E ratio of 20 times the forecasted FY26 earnings, which aligns with the three-year average and is deemed more fitting than the long-term average due to the lower sensitivity of Securities Daily Average Volume (SDAV) to EPS. The company demonstrates robust operational efficiency with an impressive gross profit margin of 87.83%. Based on InvestingPro Fair Value analysis, the stock appears slightly undervalued at current levels, with additional financial insights and 6 more ProTips available to subscribers.

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