TMX Group will thrive with 33.3% profit margin and enduring market moat

(Updated October 2025)

1. Business Summary

TMX Group is the backbone of Canada’s financial markets. It owns and operates the Toronto Stock Exchange (TSX), TSX Venture Exchange, the Montréal Exchange, and Trayport in Europe. Its revenue is diversified across trading, listings, market data, and clearing services.

More than half of TMX’s revenue now comes from recurring data and analytics, which provides stability even when trading volumes fluctuate. The company operates with high margins, low capital requirements, and dominant market share, making it effectively a critical toll operator on Canadian and global capital flows.

2. Management and Capital Allocation

John McKenzie, CEO since 2020, has demonstrated a disciplined and shareholder-focused approach. Under his leadership, TMX has improved capital efficiency, expanded into international data and analytics through acquisitions like Trayport and VettaFi, and maintained consistent dividend and buyback programs.

McKenzie’s strategy emphasizes sustainable growth rather than scale for its own sake. His focus on recurring revenue, cost control, and technology modernization has positioned TMX for reliable cash generation. The next phase of value creation will depend on execution in international markets and continued growth in high-margin analytics segments.

3. Economic Moat

TMX’s competitive advantages are well established and unlikely to erode quickly. They rest on three key foundations:

• Network Effects and Switching Costs: Issuers, investors, and intermediaries operate where liquidity and trust are deepest. Once onboarded, switching costs are high.
• Regulatory Barriers: Exchange and clearing licenses are tightly controlled, and regulatory oversight effectively locks in existing infrastructure providers.
• Embedded Data Platforms: Datalinx, Trayport, and VettaFi are core systems for clients. Their integration into trading and reporting workflows creates sticky, recurring revenue streams.

Together, these advantages support pricing power, strong margins, and stable growth with relatively modest reinvestment needs.

4. Catalysts

1. Post-Trade Expansion (2025–2026):

TMX is rolling out new post-trade clearing and settlement services, adding another layer of recurring revenue and aligning its model more closely with global peers that monetize the full trade lifecycle.

2. Trayport and the Energy Transition:

Trayport sits at the center of European power and gas trading. As electricity demand rises—driven by AI data centers, electrification, and renewable integration—volatility and hedging needs increase. This leads to more trading activity and higher demand for Trayport’s software and data.

3. Scaling VettaFi in the U.S.:

VettaFi expands TMX’s presence in the U.S. ETF and index-data market, an area of growing investor demand. The cross-selling potential between VettaFi’s analytics platform and TMX’s client relationships in North America and Europe is significant.

4. Margin Expansion Through Efficiency:

Automation and digitalization continue to streamline TMX’s cost base. The company is on track to maintain 45%+ operating margins even in moderate growth years. Owner-earnings margins are projected to rise from about 29.3% in FY24 to roughly 33.3% by FY30.

5. Ongoing Capital Returns:

TMX’s dividend and opportunistic buybacks continue to quietly enhance per-share value, supported by consistent free-cash-flow growth and a prudent payout ratio.

5. Risks

• Trading and IPO Cyclicality: Market volumes are sensitive to investor sentiment and economic conditions.
• Integration and Execution Risk: Value capture from Trayport and VettaFi depends on disciplined execution.
• Competitive and Regulatory Pressure: Emerging platforms like Cboe Canada or alternative trading systems could chip away at share, while regulators may constrain fee growth.
• FX Exposure: A stronger Canadian dollar can reduce the translated value of international revenue.

These risks can affect short-term results but are unlikely to undermine TMX’s long-term structural position.

6. Valuation and Assumptions

Methodology

A discounted cash flow model was used to estimate intrinsic value based on normalized owner earnings. The objective is to capture a realistic fair-value range rather than precise point estimates.

Assumptions

• Forecast Period: 2025–2035, followed by a terminal value.
• Growth Rates:
  • 2025–2030: 8% CAGR
  • 2030–2035: 5% CAGR
  • Terminal: 3% perpetual growth (in line with nominal GDP).
• Discount Rates:
  • Bull: 8.5%
  • Base: 9.0%
  • Bear: 10.0%

Valuation Results

Bear

$41.3

Slower growth, subdued trading, weaker Trayport/VettaFi performance

Base

$49.4

Balanced growth trajectory and stable margins

Bull

$64.4

Strong international expansion and sustained energy-trading growth

At the current market price of $49.94 (Oct 17, 2025), TMX trades almost exactly at its base-case fair value. This implies an expected annualized return of roughly 8–9%, consistent with its long-term growth potential. A buy zone emerges below $43, which provides about a 20% margin of safety.

7. Overall View

TMX Group is a stable, high-quality compounder with dependable cash flows, a wide moat, and disciplined management. It won’t deliver explosive returns, but it offers consistent value creation, resilience, and a growing stream of recurring data-driven revenue.

At current prices, the company appears fairly valued, sitting near the midpoint of its intrinsic value range. TMX is well suited for long-term investors who value predictability, steady compounding, and exposure to the expanding financial and energy data infrastructure sectors.

A meaningful pullback into the low-$40s would offer an attractive entry point. Otherwise, TMX remains a solid hold for patient investors focused on quality and sustainability.