X: Resourcefully Acquiring Fundamental Indices (RAFI)

Research evidence excerpt

X: Resourcefully Acquiring Fundamental Indices (RAFI)

TMX Group Limited

Target/Upside/Downside Scenarios Investment summary

We believe a continued favourable mix shift towards stickier,TMX Group Limited

recurring, and high growth revenue will drive a higher

80 125 Weeks 22JAN24 - 12JUN26 multiple over time. TMX currently trades at ~20x NTM P/E,

70 TARGETTARGET 71.0071.00 below long-term historical averages. We believe the current

60 multiple understates the extent to which the business has

been fundamentally repositioned over the last 10 years,

50 CURRENTCURRENT 50.4850.48 with recurring revenue increasing from 40% to 50% and

40 management targeting a continued positive mix shift towards

30 67% over the long term. TMX has a fundamentally strong

20 business model characterized by a dominant market share in

15m Canada and high barriers to entry.

10m

5m

2024 2025 2026

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J Key potential catalysts include the following:

X CN Rel. S&P/TSX COMP IDX MA 40 weeks 1. Continued progress towards achieving >50% of revenue

Source: Bloomberg and RBC Capital Markets estimates for Target from Global Insights, Data, and Analytics over time

Valuation compared to 40% today.

Our 12-month price target of CAD $71/share is derived by 2. Continued progress towards achieving >67% recurring

applying a 25x multiple on our NTM EPS forecast. revenue target over time compared to ~50% today.

3. Operating leverage driving continued EBITDA margin

Our 25x P/E multiple is above the long-term average and expansion.

above-peer average driven by a continued shift towards

higher data/analytics revenue, higher recurring revenue and Risks to rating and price target

supported by a normalized interest rate environment.