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TSX operator looks to AI as newest investor tool for smaller companies

AI can fill an information gap that exists for lesser-known publicly traded firms, TMX CEO says

The S&P TSX composite index screen at the TMX Market Centre in downtown Toronto is photographed on Friday, November 11, 2022.  THE CANADIAN PRESS/ Tijana Martin
TMX Group reported record revenue in its first quarter, thanks in part to its fast-growing data business. THE CANADIAN PRESS/ Tijana Martin (The Canadian Press)

Artificial intelligence (AI) could become a crucial tool for investors on the hunt for their next investment opportunity, according to the head of the owner of the Toronto Stock Exchange (TSX), particularly when it comes to smaller, lesser-known companies.

While Canada's largest firms get plenty of analyst and media coverage, that's not the case for micro- and small-cap companies, such as those listed on the TSX Venture, John McKenzie, chief executive officer of TMX Group (X.TO), told Yahoo Finance Canada in an interview.

It's an information gap that could be filled by AI, he says.

"More discoverability for small-cap companies, more insights into them – all can be generated with that kind of technology. That's where we're looking at some of the potential applications," he said.

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TMX Group has been laser focused on beefing up its data and analytics capabilities, both through in-house development and acquisitions, so much so that it was the fastest-growing segment in its latest quarter.

Revenue from the data side of the business jumped 14 per cent year-over-year in Q1, while its other divisions posted no growth or a one per cent dip in revenue.

TMX's data division accounts for the biggest portion of the company's revenue mix at 34 per cent.

But McKenzie says he's not done yet and wants to see "more than half" of the company's revenue coming from that segment in the long term.

Analysts raise price targets on TMX

The company reported record revenue of $299.1 million in the first quarter and a profit attributable to shareholders of $89 million, which beat analyst estimates. Operating expenses rose 10 per cent.

Bay Street analysts took a largely rosy view of the results, and two of them hiked their 12-month price targets.

CIBC Capital Markets analyst Nik Priebe increased his target to $150 per share, from $140, while National Bank analyst Jaeme Gloyn raised his target to $155 per share, from $152.

"TMX delivered on our three keys to the quarter: (i) demonstrating continued solid momentum at Trayport; (ii) delivering revenue growth with the help of pricing initiatives and M&A activity; while at the same time, (iii) containing expense growth to deliver an EBITDA margin beat," Gloyn said in a note to clients. Trayport is a UK-based trading software firm purchased by TMX in 2017.

"The one drawback is that organic expense growth of 8% y/y outpaced organic revenue growth of 6% y/y. However, this largely reflects the impact of a softer capital markets backdrop on listings and trading revenue growth."

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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