Our target price for ASX is $71.60. We value ASX on a three-stage DCF model based on near-term projections of likely earnings, and then a fade-out of ASX's present high margins as competition spreads out across the value chain. We set our risk-free rate at 4.0% and our equity risk premium at 7%. We also set our terminal growth rates at 3.75%. 

The primary risk to our target price relates to uncertainties surrounding trading volumes in equities and derivatives. ASX might also be vulnerable to any change in its competitive environment brought about by changes in regulation. ASX has a number of potential growth initiatives. However, none of these are currently being ascribed much value by the market largely due to the difficulty in assessing the size and quantum of any potential revenue opportunity. If any of this becomes more obvious, then this could result in ASX’s share price exceeding our target valuation.