ii view: LSEG ups Refinitiv savings estimate

Buying data company Refinitiv but underperforming the FTSE-100 index. We look at these latest results.

First-half results to 30 June 2021

• Total adjusted income up 4.6% to £3.36 billion
• Adjusted operating profit up 4% to £1.29 billion
• Interim dividend up 7% to 25p per share
• Refinitiv cost savings of £77 million made during the period

Guidance:

• Full year guidance for Refinitiv cost savings increased to £125 million from £88

Chief executive David Schwimmer said:

"LSEG has delivered a good financial performance in the first half of the year, reflecting revenue growth across all divisions.

"We are executing well on our integration plans to deliver the strategic and financial benefits of the Refinitiv transaction.

"We continue to invest in projects that enhance our customer offering and deliver a more scalable and efficient business, particularly in Data & Analytics.  This will support our revenue growth ambitions and lead to further operating margin improvement.  The reduction of leverage during the period reinforces our strong financial position and, with our mix of world-class assets and unique positioning in growing markets, we look forward to further progress during the rest of the year."

ii round-up:

The London Stock Exchange Group (LSE:LSEG) today raised its cost savings estimate following its earlier year $27 billion acquisition of financial data and analytics company Refinitiv.

Full-year 2021 cost savings of £125 million are now expected as it integrates Refinitiv, up from a previous £88 million estimate. The guidance came as the LSEG reported an adjusted 4.6% increase in overall income for the first half to the end of June. 

LSEG shares rose by more than 4% in UK trading, leaving them down by around 9% over the last year. That compares to a 15% plus gain in the FTSE-100 index over the past year. 

In March, the LSEG disappointed investors with its expectations for cost growth over 2021 as it released its first set of results following the Refinitiv purchase. 

Adjusted operating profit of £1.29 billion for the half-year beat analyst forecasts, aided by better-than-expected cost management. Savings of £77 million have been made following the integration of Refinitiv. 

A revenue gain of 9.6% for its Capital Markets division led performance, helped by the largest number of equity IPO’s in the period since 2014. Post trade revenue gained by 8.4%, while Data & Analytics revenue gained by 4.8% 

Broker Morgan Stanley summarised the results as ‘reassuring’, with management potentially looking to under promise and over deliver. Broker UBS expects only minor changes to earnings forecasts.  

ii view:

Refinitiv serves over 40,000 customer institutions and 400,000 end users across 190 countries. LSEG’s FTSE Russell stock indexes business and other information services are now being moved into a newly formed data and analytics division. The acquisition of Refinitiv moves the centre of gravity at LSEG away from trading operations and towards data provision.

For investors, integration risk in relation to Refinitiv needs to be considered. Cost pressures generally also require thought, while cyclicality in certain operations such as company admissions and IPOs should not be forgotten. That said, the LSE is uniquely positioned, with a previous takeover attempt from the Hong Kong Exchange a reminder. The purchase of Refinitiv offers cost saving opportunities and looks to stress the importance of data and its value to the modern world. Although not blow away at around 1% on a historical basis, ongoing annual growth in the payment is also not to be overlooked. In all, while work in relation to Refinitiv is ongoing, the company’s unique position continues to underpin long-term positive prospects. 

Positives: 

• Product and geographical diversity
• Refinitiv cost synergies 

Negatives:

• Subject to regulation
• Factors outside of its control such as macroeconomic uncertainty can hinder performance

The average rating of stock market analysts:

‘Buy’