ii view: LSE expects Refinitiv purchase to complete early 2021

by Keith Bowman from interactive investor |

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It's potentially a transformative acquisition, but are the shares already pricing in the good news? 

Third-quarter trading update

  • Total income up 2% to £600 million
  • Nine-month year-to-date total income up 6% to £1.84 billion
  • Proposed acquisition of Refinitiv continues to progress

Chief executive David Schwimmer said:

"The Group delivered a resilient performance in the quarter against a challenging market backdrop while we continue to execute our strategic plans across our business.  We remain focused on our strong operational resilience, continuity of services to our customers and market participants, and the wellbeing of our employees, the majority of whom continue to work remotely.

"We are making good progress on the highly attractive Refinitiv transaction, having secured further regulatory approvals around the world.  We continue to engage constructively with the European Commission and believe the potential divestment of the Borsa Italiana group will contribute significantly to addressing the EU's competition concerns."

ii round-up:

Global financial markets infrastructure business, the London Stock Exchange Group (LSE:LSE), has reported marginally better than expected quarterly revenue as it tries to complete its £21 billion acquisition of financial data company Refinitiv. 

Revenue of £600 million fractionally exceeded City estimates, helped by a 2% gain in post trade activity. LSE expects its Refinitiv purchase to complete in the first quarter of 2021. 

LSE shares drifted slightly lower in UK afternoon trading, although are up nearly 10% year-to-date. Shares of asset managers Standard Life Aberdeen (LSE:SLA), M&G (LSE:MNG) and Schroders (LSE:SDR) - fellow FTSE 100 index members - are all down for the year.

Refinitiv serves over 40,000 customer institutions. Earlier in October, the LSE agreed the conditional sale of its Borsa Italiana business for €4.33 billion to Euronext N.V. This would hopefully help overcome regulatory concerns at the European Commission. Refinitiv is on track to achieve $650 million in cost saving come the end of the year.

The LSE also underlined its good position in dealing with Brexit given a diversified revenue mix.

Full-year results to the end of December are likely to be reported in late February 2021.    

ii view:

An ultra-low interest rate environment pushing investors away from cash and into other assets provides a supportive backdrop. The explosion of data across all sectors of society and including financial services also plays into LSE's favour. 

For investors, a previous 2019 attempted takeover of LSE by the Hong Kong Exchange underlines the potential for yet further industry consolidation. A 16% increase in the first-half 2020 dividend and five consecutive years of dividend increases are also not to be overlooked in the current low interest rate environment. 

A 90%-plus gain in the share price over the course of 2019 leaves the shares on an estimated price/earnings ratio of nearly twice the 10-year average, suggesting the shares are not cheap. EU approval for its Refinitiv acquisition is still required, too. However, while some investors may wish to wait for events to unfold, LSE is a strong business in a thriving sector. 

Positives: 

  • Product and geographical diversity
  • Progressive dividend policy

Negatives:

  • Selling its Borsa Italiana business
  • Factors outside of its control such as macroeconomic uncertainty can hinder performance

The average rating of stock market analysts:

Strong hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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