SGX downgraded to Sell by Goldman Sachs

Singapore 50 dollar bill

Goldman Sachs downgraded shares of Singapore Exchange (SGXL.SI) to Sell from Buy and cut its target price on the stock to S$6.60 from S$8.70.

Goldman said the Indian stock exchanges’ decision to cut off foreign exchanges’ data access for derivatives products was likely to cause four pressure points on the stock: Loss of revenue from Nifty F&O and rupee futures, lower market data revenue, collateral damage for other derivatives and multiple compression.

Goldman estimated that 10 percent of SGX’s derivatives business revenue comes from the Nifty F&O and rupee futures, which are its two key India offerings.

The bank added that the derivatives business has been SGX’s only growth engine for the past few years. The loss of the Indian products could lower the volumes for other derivatives products because one of SGX’s key client propositions has been the ability to invest in multiple Asian derivatives products in one venue, Goldman said.

It cut its earnings per share estimates by up to 11 percent for the fiscal 2018-2020 periods. Goldman added that the lower earnings growth forecast also spurred it to lower the price-to-earnings multiple it used to set its target price to 19 times 2018 price-to-earnings from 24 times previously.

In late afternoon trade, shares of SGX were down 7.35 percent at S$7.31, off an earlier low of S$7.20.