ii view: LSE raises profit hopes and underlines AI drive

Third-quarter trading update to 30 September

• Total currency adjusted income up 6.5% to £2.31 billion
• Currency adjusted gross profit up 6.9% to £2.02 billion
• Planning a new £1 billion share buyback 

Guidance:

• Now expects an increase in the full-year adjusted profit margin (EBITDA) at the top of its previous 0.75-1% range

Chief executive David Schwimmer said:

"We continued our strong momentum in Q3, driving growth across all business lines. We have significantly accelerated our strategic progress in the last few months, driving the long-term growth potential of the business.

“We have launched a series of innovative new products for customers positioning LSEG as the partner of choice in AI with the likes of Microsoft and Databricks.”

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ii round-up:

The London Stock Exchange Group (LSE:LSEG) today increased annual profit hopes, with the data and indexes provider underlining its push towards AI via partnerships with the likes of Microsoft Corp (NASDAQ:MSFT). 

Currency adjusted income for the third quarter to late September rose 6.5% to £2.31 billion, fuelling a 6.9% improvement in currency adjusted gross profit to £2.02 billion. Analysts had forecast profit of £1.99 billion. The global financial markets infrastructure company now expects a gain in the full-year adjusted profit margin at the top end of its previous 0.75-1% range. 

Shares in the FTSE 100 company rose 6% in UK trading having come into this latest news down by close to a quarter so far in 2025. The FTSE 100 index is up almost 16% over that time. US headquartered fund manager BlackRock Inc (NYSE:BLK) are up by a tenth year-to-date. 

As well as the London Stock Exchange, LSEG also owns financial data provider Refinitiv. Income gains during the quarter were driven by index related improvement of 9.3%, risk intelligence growth of 14% and market related revenues up 6.3%.  

Alongside the trading update, LSEG also announced a deal for a consortium of 11 global banks, including Barclays (LSE:BARC) and HSBC Holdings (LSE:HSBA), to acquire a 20% stake in the company’s Post Trade Solutions business for £170 million.

The deal also sees LSEG acquiring enhanced revenue rights to SwapClear – a clearing house for interest rate swaps - at a cost of £1.15 billion and payable in two instalments.

A newly proposed share buyback programme of £1 billion will begin before the end of this financial year, making for an annual total of £2.5 billion. 

Broker Morgan Stanley reiterated its ‘buy’ stance on LSEG shares post the news, flagging the company as a ‘top pick.’

Full-year results are likely to be announced late February or early March. 

ii view:

Headquartered in the City of London, the FTSE 100 company employs over 26,000 people across 70 countries. Data and Analytics generated half of all revenues in 2024. That was followed by Markets at just over a fifth, Post Trade and FTSE indexes at just over a tenth each and risk management or Risk Intelligence the balance of around 6%. 

Geographically, the US generated most revenues last year at 38%, followed by the UK at 32%, Europe 14%, Asia 12%, and others the balance of 5%. 

For investors, an uncertain economic outlook and its potential impact on markets should not be ignored. Cyclicality in certain operations such as company admissions and IPOs warrant consideration. Geopolitical tensions and possible overseas government sponsored cyberattacks offer cause for concern, while elevated inflation has pushed wages higher across both computing and financial services industries.  

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To the upside, a partnership with Microsoft to transform access to LSEG's financial data using AI is ongoing. Management initiatives to sharpen financial performance across its businesses continue. High levels of subscription-based revenues offer some protection against cyclical economic ups and downs, while a previous takeover attempt via the Hong Kong Exchange arguably underlines the company’s unique position.

In all, and despite ongoing risks, a consensus analyst fair value estimate above £115 per share looks to offer grounds for continued longer-term optimism.  

Positives: 

• Product and geographical diversity
• Microsoft partnership 

Negatives:

• Subject to regulation
• Macroeconomic uncertainty can hinder performance

The average rating of stock market analysts:

Buy