ii view: solid income growth at London Stock Exchange

Shares in this icon of the Square Mile have outperformed wider markets year-to-date. Buy, sell, or hold? 

Third-quarter trading update to 30 September

• Total income up 16% to £1.9 billion
• Full year guidance unchanged

Chief executive David Schwimmer said:

"We have delivered another strong quarter, with good growth across all businesses. The consistency of delivery in recent quarters demonstrates the strength of our business model, generating quality recurring revenues from a range of services that are highly valued by our customers.”

ii round-up:

The London Stock Exchange Group (LSE:LSEG) today detailed growth across all divisions, including a strong performance for its interest in bond, or fixed income Tradeweb platform as it remained on track to meet full-year forecasts. Market volatility has also been a boost to numbers.

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Total quarterly income rose 16% to £1.90 billion, beating City forecasts for £1.88 billion, with recurring revenues and aided by its 2021 acquisition of financial data provider Refinitiv up almost 6%. 

LSEG shares fell by more than 2% in UK trading having come into this latest announcement up by 7% year-to-date. Foreign exchange broker TP ICAP GROUP (LSE:TCAP) is up almost a fifth in 2022 as central bank actions have added to interest rate differences, while asset manager Schroders (LSE:SDR) is down by over a third as global markets have fallen. 

The LSE operates across the three divisions of data & analytics, which generates the bulk of revenues, then capital markets and post trade services. Income for data & analytics rose 15.4% to £1.27 billion, aided by its recent $325 million acquisition of multi-asset trading technology supplier Tora, and strengthening its presence in the cryptocurrency marketplace. 

Income for its capital markets division gained by almost a fifth to £369 million, pushed higher by 20%-plus gains for each of its foreign exchange and fixed income units. Post trade income rose 15% to £249 million. 

The FTSE 100 company returned £235 million of its £750 million share buyback programme during the quarter. Full-year results are likely to be announced late February or early March. 

ii view:

The London Stock Exchange Group is both a global financial markets infrastructure provider and financial data company. Headquartered in the City of London, it employs over 22,000 people. Following its acquisition of Refinitiv, around 70% of its revenues are recurring or subscription based. 

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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, as does execution risk in the integration of Refinitiv and other, if smaller, acquisitions. 

On the upside, subscription-based revenues of more than two-thirds should offer some protection against the ups and downs of the economic cyclical. Bolt-on acquisitions continue to be made, bolstering and extending the reach of current businesses, while a previous takeover attempt by the Hong Kong Exchange underlines the attraction of London's unique position.

On balance, and with the consensus analyst estimate of fair value sat at over £90 per share, grounds for longer-term optimism look to persist. 

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