Brokers' take: Jefferies upgrades SGX to a 'buy' with S$11.30 target price

JEFFERIES has upgraded Singapore Exchange (SGX) to "buy" from "hold" previously, with a higher target price of S$11.30 from its previous S$10.50.

In a Monday report, the research team said that "multiple growth levers" exist for SGX, and with the upcoming index changes, volatility should drive volumes and the need for hedging higher.

Jefferies equity analyst Krishna Guha noted that SGX has robust volumes, with securities daily average traded value rising to 24 per cent month on month to S$1.7 billion, and 18 per cent quarter on quarter to S$1.52 billion in the third quarter of FY21.

Further, SGX is expanding its product offerings through organic and inorganic means to grow its revenue and facilitate financial market development, which confers multiple growth levers, he added.

Mr Guha also wrote that upcoming index changes are "well flagged", and that there are "anecdotes of broadening of the local index". In addition, he said that the market is optimistic that secondary listings, unlike in the past, will generate volumes.

With the tightening of financial conditions in the region, the analyst highlighted that volatility and hedging needs may also be heightened.

"That said, the mildly dilutive convertible bond issuance of about 3 per cent at 30 per cent conversion premium seems a bit incongruous, in our view, given the above positives," he added.

Jefferies is raising growth estimates by 11 per cent and 4 per cent for FY21 and FY22 respectively, on the back of "higher securities volumes and derivative fees". The research team said a key near-term risk is the potential launch of MSCI China futures by the Hong Kong Stock Exchange.

As at 2.48pm on Tuesday, shares of SGX were trading 1.5 per cent or S$0.15 higher at S$10.11.