LSE keeps growing, but bookies crash

by from interactive investor |

Having endured months of boardroom turmoil and without a permanent leader since November, today's trading update from London Stock Exchange has come as a welcome relief for investors.

Total income rose by 13% year-on-year to £520 million in the first three months of 2018, with all parts of the clearing-to-capital markets group on the front foot.

What's more, uncertainty triggered by the row between chairman Donald Brydon and hedge fund TCI looks to have passed after Goldman Sachs veteran David Schwimmer was recently hired as CEO from August.

TCI, which owns 5% of LSE, had previously agitated against plans for "world-class CEOXavier Rolet to leave the group, where he oversaw growth of more than 500% in the share price up until his eventual departure in November 2017.

The planned arrival of the highly-regarded Schwimmer appears to have done the trick, though, with his recruitment a key milestone in smoothing out a leadership transition process that will also see Brydon step down in 2019.

Rolet's exit followed the failure of LSE's merger with Deutsche Boerse after the deal was vetoed by European regulators in 2017. LSE is still seen as a potential target for CME Group or the owner of the New York Stock Exchange.

But since Rolet's departure, chief financial officer David Warren has done a decent job as interim CEO in stating the case for LSE's future as a standalone company. As well as benefiting from strong levels of market activity, recent MiFID II regulation has served to highlight and embed the open access model already backed by the group over many years.

In his speech to the company's AGM today, Brydon said LSE was "strategically, operationally and financially well positioned" and that it would look to continue to drive returns for shareholders.

On the basis of trading last year, the company recently declared a final dividend of 37.2 pence per share, which represented a 19% year-on-year increase. UBS has a projected 2018 yield of 1.5%, rising to 2.2% by 2022.

LSE still has plenty of fans in the City, with RBC Capital Markets today reaffirming its outperform investment rating alongside a price target at 4600p.

Source: interactive investor              Past performance is not a guide to future performance

While the uncertainty at LSE starts to clear, the opposite appears to be the case in the gaming sector after a further blow in the industry's battle to stop the maximum stake on gambling machines being reduced to £2.

According to the Times, Chancellor Philip Hammond will now look to other gambling levies to make up the estimated £450 million that will be lost through the proposed limits on fixed odds betting terminals.

His change of stance would be a massive blow to an industry previously hopeful that the maximum allowed stake would be cut from £100 to around £20 or £30.

While no announcement from the government is expected until after the local elections, today's speculation meant shares in William Hill, new Ladbrokes Coral owner GVC Holdings and Paddy Power dropped 13%, 7% and 5% respectively.

The Ladbrokes takeover has been structured so that shareholders receive up to an extra 42.8p per share based on the result of the gaming machine review. In the event of a £2 cap they will receive nothing, compared with 30.3p if the figure is set at £20.

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