It was intended to provide a world-class administration platform for 6 million members of the industry fund. But after years of delays and a burst of costs, from $70 million to $500 million, the company was sold to Link Administration for $1.
Chanticleer raised red flags about the project in the three years before the project was shut down. But the unwieldy ownership structure led to a lack of accountability, allowing it to go beyond the point of no return.
ASX chief executive Dominic Stevens is absolutely confident in the ability of his chief IT manager and head of the CHESS project, Tim Hogben, to complete the job in time for a “go-live” in April 2023.
Hogben told Chanticleer last year that there is no plan B. That was another way of saying that the ASX is determined to get the project done under its current design.
Market participants view the CHESS upgrade as essential to keep pace with the demands of private and institutional shareholders. For example, the legacy CHESS system is being upgraded to replace paper statements with electronic statements to keep the market happy.
The ASX has set an ambitious timetable for testing the new distributed ledger system. This year is a make or break as the introduction of new processes and systems involves overlapping changes that must be implemented in order not to have a further delay in the launch date.
The CHESS replacement has already been delayed twice and if it makes the April 2023 “go-live” it will be two years behind the original schedule.
The rising costs of the project are beginning to worry the analyst community, with Morgan Stanley analyst Andrei Stadnik placing an “underweight” rating on ASX stock Friday and lowering its 12-month price target to $72.50 a share.
Stadnik’s note, which must have contributed to the 3.6 percent drop in ASX shares on Friday to $84.78, says costs will rise 7.5 percent this year and 8.5 percent in 2023. due to wage inflation in IT, the replacement of CHESS and the cost of regulatory oversight.
He says the stock is expensive because you’re paying 36.5 times earnings per share in fiscal 2022 for low-single digit earnings growth. Also, he says, it’s expensive compared to global competitors trading on lower PE multiples and higher earnings growth.
Bullish ASX investors will take heart from the report released in the second week of January by Macquarie Securities, which set an outperform rating on the stock and a 12-month price target of $103.50.
Macquarie’s Andrew Buncombe and Andy Chuk said, “We remain confident in ASX’s long-term growth prospects.”
ASX, which will publish its half-year results on February 10, has provided market participants access to the CHESS replacement system for the past month and will provide further access for testing in April.