ii view: LSEG ups cost-saving hopes and shareholder returns

A $27 billion acquisition of financial data provider Refinitiv continues to be digested. We assess prospects.  

First-half results to 30 June 

• Adjusted total income up 6% to £3.57 billion
• Adjusted profit (EBITDA) up 27% to £1.8 billion
• Interim dividend up 27% to 31.7 pence per share
• Launching £750 million share buyback over 12 months

Chief executive David Schwimmer said:

“LSEG has delivered a strong first-half performance with continued revenue growth across our businesses. We are managing costs well and we continue to make progress on achievement of synergies.”

ii round-up:

The London Stock Exchange Group (LSE:LSEG) today announced a new £750 share buyback programme as it detailed results marginally ahead of City forecasts and upped its expected full-year cost savings estimate. 

Revenue growth across all its business helped total income of £3.57 billion marginally beat analyst forecasts with full-year expected cost savings of £260 million raised from a previous estimate of £220 million. 

LSEG shares rose by more than 2% in UK trading leaving them up by around a fifth year-to-date. Shares for specialist fund manager Man Group (LSE:EMG) are up by around 5% during 2022, while shares for more traditional rival Schroders (LSE:SDR) are down by 17%. The FTSE All World index is down around 15% year-to-date.

The LSEG completed a $27 billion acquisition of financial data provider Refinitiv in early 2021 with cost savings focused largely on its integration. 

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Higher market values of listed companies at the end of 2021 helped drive annual fees and revenues for its Capital Markets division up by almost 13%. More than 10 new ESG products aided 4% sales growth for its Data & Analytics business, while derivatives activity helped drive an 8.5% increase in Post Trade divisional revenues.

Revenue growth and cost savings assisted a 27% improvement year-over-year in adjusted profit to £1.8 billion, pushing a same-size hike in the interim dividend to 31.7p per share.  

Broker UBS reiterated its buy stance following the results, flagging solid revenue growth and improving cost discipline. 

A third-quarter trading update is scheduled for 21 October. 

ii view:

The London Stock Exchange Group is both a global financial markets infrastructure provider and data company. It operates across the three divisions of data & analytics, which generates the bulk of revenues, capital markets and post trade services. Following its acquisition of Refinitiv, around 70% of its revenues are recurring or subscription based. 

For investors, an uncertain economic outlook and its potential impact on markets cannot be overlooked. Cyclicality in certain operations such as company admissions and IPOs are historic, while execution risk in the integration of Refinitiv remains. 

More favourably, subscription-based revenues of more than two-thirds should offer some protection against cyclical economic ups and downs. The purchase of Refinitiv offers cost-saving opportunities and looks to stress the importance of data and its value to the modern world, while a previous takeover attempt from the Hong Kong Exchange underlines its uniquely position. In all, and with the consensus analyst estimate of fair value sat at over £93 per share, grounds for longer-term optimism remains. 

Positives: 

• Product and geographical diversity
• Refinitiv cost synergies 

Negatives:

• Subject to regulation
• Macroeconomic uncertainty can hinder performance

The average rating of stock market analysts:

Buy