Why ASX’s LSEG partnership matters for shareholders

ASX (ASX:ASX) has entered a high profile technology partnership with London Stock Exchange Group to overhaul its ASX 24 derivatives trading platform, targeting higher performance, reliability and support for future product expansion.

For you as an investor, this move is closely linked to previous issues with outages and regulatory scrutiny around ASX’s ageing infrastructure. The collaboration speaks directly to operational resilience and the exchange’s ability to support long term growth in its core markets.

See our latest analysis for ASX.

Despite the LSEG partnership putting the focus on future resilience, ASX’s recent share price performance has been mixed, with a 30 day share price return of a 7.56% decline and a 1 year total shareholder return of an 18.14% decline, suggesting momentum has been fading rather than building.

If this kind of exchange infrastructure story has your attention, it can be worth casting a wider net and checking our screener of 3 top founder-led companies as potential next ideas to research.

With the shares showing negative 1 year and 3 year total returns, but trading at a discount to the A$58.93 analyst price target, you have to ask: is ASX quietly undervalued here, or is the market already pricing in any future growth?

Most Popular Narrative: 10.5% Undervalued

ASX’s most followed narrative pegs fair value at A$58.93 versus the last close of A$52.72, with that gap resting on detailed revenue and earnings assumptions discounted at 7.72%.

Expansion and demand in high margin technology and data offerings driven by appetite for analytics, connectivity, and market information from both domestic and global market participants provides opportunity for recurring, diversified non transactional income, supporting overall margin expansion and earnings stability.

Read the complete narrative.

Want to see what kind of revenue mix and profit margins need to hold for that valuation to stack up? The narrative leans heavily on recurring income and a richer multiple than the wider capital markets peer group. Curious how those moving parts fit together and what they imply for ASX’s earnings power beyond the next few years?

Result: Fair Value of A$58.93 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, you still need to weigh rising cost pressures and ongoing regulatory scrutiny, either of which could squeeze margins and challenge those optimistic earnings and P/E assumptions.

Find out about the key risks to this ASX narrative.

Another View: Cash Flows Paint a Tougher Picture

While the popular narrative points to a fair value of A$58.93 and calls ASX undervalued, our DCF model tells a different story. On that cash flow view, ASX appears overvalued, with a fair value closer to A$47.72. This raises an important question: which story should investors rely on more, multiples or cash flows?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out ASX for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 8 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this mix of cautious and optimistic signals feels tricky to balance, act promptly and review the underlying data yourself, starting with 2 key rewards and 1 important warning sign.

Looking for more investment ideas?

Do not stop at one exchange stock when you can quickly scan other opportunities that fit different goals and risk levels using focused, data driven screens.

• Target long term value potential by reviewing companies identified in our 8 high quality undervalued stocks, where prices and fundamentals can tell a different story to recent sentiment.
• Strengthen your income focus by checking out our 6 dividend fortresses, built around businesses offering 5%+ yields with an emphasis on stability.
• Protect your downside by assessing companies in the 8 resilient stocks with low risk scores, highlighting stocks with risk profiles that may better suit cautious capital.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.