Insider: directors back heavily sold FTSE 100 firm

A fresh slide for London Stock Exchange Group (LSE:LSEG) shares in the wake of interim results has brought a strong boardroom response after directors spent £860,000 on increased stakes.

The buyers included chief executive David Schwimmer, whose £188,000 of dealings took place last week at a one-year low average price of 9,402p.

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The shares, which were as high as 12,000p in February, fell 10% at one point on the day of July’s half-year results even though Schwimmer upgraded margin guidance for the year. 

The latest share price setback reflected concerns about LSEG’s revenue growth outlook after average subscription value increased 5.8% in the second quarter. It said competitor response to “our improved performance” caused the easing from 6.4% in the first quarter.

Analysts said the risk of disruption from artificial intelligence (AI) has also weighed on the valuation, which is now the lowest since March 2023 at 22 times forward earnings compared with 29 times earlier this year.

Another factor in the underperformance has been a rotation into value, cyclical and non-US exposed sectors, such as European banks and insurers. On the other hand, LSEG is priced as a quality and defensive name with 58% of revenues in the US. 

The shares have traded at a 25% discount to US peers and are valued in line with Deutsche Boerse despite having stronger earnings per share growth and revenue quality.  

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In fact, the Financial Times pointed out last week that the LSEG is the only one of the world’s top 10 exchange groups whose shares have fallen this year.

Given the London market’s current travails as a financial centre, it wondered whether the company’s name had become a “distraction rather than a descriptor”.

The 2021 acquisition of Refinitiv means that LSEG’s biggest division is now data and analytics, accounting for 44% of its total income of £4.5 billion in the first half. The markets division represented 39% and the benchmarks and indices business FTSE Russell 10%.

Schwimmer told investors last week that he believes LSEG is now “strategically aligned” to a number of powerful growth drivers.

These include demand for data to feed and drive the modern economy, including for AI models, the digitisation of financial markets and demands of regulatory and risk management.

A partnership formed with Microsoft more than two years ago continues to make progress towards monetisation. Schwimmer added: “The first half was marked by a consistent cadence of new product launches, which we expect to continue in the second half.”

He reported a 6.8% increase in total income for the half year, while adjusted underlying earnings of £2.2 billion were 9% higher and slightly above the City consensus.

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Strong cash generation means the company is planning a further £1 billion of buybacks and has raised the interim dividend for payment on 17 September by 14.6% to 47p a share.

Bank of America reduced its price target to 12,000p from 13,000p following the results but said that concerns over the revenues growth outlook appeared overdone.

It expects resilient revenues that are 73% recurring and an improving operating margin to drive 10% compound earnings per share growth in 2025-27. 

UBS, which cut its target to 12,400p, noted recently that a sum-of-the-parts valuation placed the data & analytics business at an eight times earnings multiple or 65% discount to FactSet.

It added: “We argue potential downside from AI disruption is priced into shares. While the stock may lack a catalyst and investor positioning may be a headwind, we think the risk-reward profile at LSEG is strongly skewed to the upside.”

As well as Schwimmer’s purchase, finance chief Michel-Alain Proch spent £530,000 on shares and non-executive director Lloyd Pitchford made an investment worth £140,000.

Elsewhere in the FTSE 100 index, non-executive directors at Glencore (LSE:GLEN), Vodafone Group (LSE:VOD), Lloyds Banking Group (LSE:LLOY) and Croda International (LSE:CRDA) last week bought shares in their respective companies.

The biggest involved a £115,000 purchase of Vodafone shares by Christine Ramon, who has been a member of the board since November 2022. Her investment took place on Wednesday at a price of 83.1p, which is the highest level in two years after a rise of more than 20% this year.

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Glencore non-executive director Martin Gilbert disclosed two purchases of the miner’s shares worth a total of £27,700. They took place on Thursday at prices of about 277p, having been as high as 326p in the days prior to a production update and subsequent interim results.

A previous purchase by the financial services veteran, who served as the company’s senior independent director between 2018 and 2022, took place in April at 232.5p.

The Lloyds purchase involved new board member Chris Vogelzang after he spent £24,400 on shares at a price of 80.1p on Wednesday. The lender is up more than 45% this year.

Croda International shares got the support of Chris Good after he made an investment worth £26,000 at a price of 2,632p on Wednesday. The shares of the speciality chemicals business are down 23% this year and by 75% since December 2021.