Performance Review of 2 Financial Stocks: Capital & Regional PLC and London Stock Exchange Group PLC

The British and European Government have been considering various steps to boost the economy from Coronavirus-induced slump, including the additional EUR 600 billion stimulus unveiled recently by the European Central Bank (ECB). Subsequently, the global markets posted a remarkable rally.

The rally has been driven by several factors on Friday, such as:

• The gradual lifting of lockdown across economies encouraged market sentiments, despite the civil unrest in the US and weak economic readings.
• Meanwhile, the UK house prices plunged for a third consecutive month in May, albeit lesser than April.

Considering the above factors, we are going to discuss two LSE listed Financial Services stocks - Capital & Regional PLC (LON:CAL) and London Stock Exchange Group PLC (LON:LSE). As on 5^th June 2020, CAL and LSE closed the week by falling 0.17 per cent and 2.39 per cent, respectively. In order to understand the share price movements, lets quickly go through their recent regulatory updates and financial position to foresee the business prospects.

Capital & Regional PLC (LON:CAL) – Expecting ‘Sound Footing’ Post Growthpoint Properties Deal

Based in the United Kingdom, Capital & Regional PLC is a FTSE All-Share listed Company, which operates as a specialist property REIT. The Company own and manages seven shopping centres, namely Walthamstow, Maidstone, Blackburn, Ilford, Hemel Hempstead, Wood Green, and Luton. Operationally, the Group bifurcates its business into three segments - UK Shopping Centres, Snozone and Group/Central. The UK Shopping Centres division is involved in trading properties and rental of investments. The Group/Central and Snozone segments manage properties and operations of indoor ski slopes. The Company stock has been listed on the LSE (London Stock Exchange) since 22^nd May 1995.

(Source: Presentation, Company Website)

Recent Major Developments of 2020

21^st May 2020: The Group has declared and approved a final dividend of 11 pence per share, which will be paid on 24^th June 2020.

29^th April 2020: Being mindful of the COVID-19 impact, the Company’s Board of Directors have taken a voluntary reduction in salary and fees by 20 per cent.

Financial Highlights - Demonstrated Resilient Performance Underpinned by Leasing

On 24^th April 2020, the Company published its 2019 Annual Report, with significant progress in delivering the Community Centres strategy and placing the balance sheet in a robust position to counter the ongoing structural changes taking place in retailing and the headwinds derived from a combination of economic uncertainty. Some Additional Highlights are stated below:

• In FY19, the net rental income reduced by GBP 2.6 million to GBP 49.3 million as compared with the corresponding period of the last year (2018: GBP 51.9 million), reflecting the GBP 3 million impact of CVAs (Company Voluntary Arrangements) and administrations.
• The fall in property valuations has wedged statutory results for the financial year 2019 with an IFRS loss for FY19 of GBP 121 million (Year to December 2018: Loss of GBP 25.6 million).
• On an adjusted basis, which reflects the continuing operating performance, the Group reported an adjusted profit for FY19 of GBP 27.4 million against GBP 30.5 million in the year ended December 2018.
• On a per-share basis, Basic NAV (Net Asset Value) and EPRA (European Public Real Estate Association) NAV fell to 361 pence and 364 pence respectively, decays of 235 pence and 228 pence from the respective 2018 equivalents.
• For FY19, the net debt to property value reduced to 46 per cent as the fall in property valuations was offset by the proceeds of the Growthpoint transaction.
• Despite the wider market pressures, the Company’s operational performance in the year was relatively resilient with like-for-like footfall outperforming its benchmark by 1.7 percentage points and occupancy increase year-on-year to 97.2 per cent.

COVID-19 Update – Taking Several Actions to Reduce Costs

On 31^st March 2020, the Group provided an update on the impact of the COVID-19 mayhem, the management actions being undertaken and the resources that are available to support the business during this evolving situation. Additional Highlights are:

• On 25th March 2020, the Company had total cash on the balance sheet of more than GBP 90 million and an undrawn revolving credit facility of GBP 15 million available until January 2022.
• To further improve cash flow, the Group has suspended all non-committed capital expenditure projects which could preserve more than GBP 10 million over the next 12 months.
• The management has taken several actions with respect to the impact of the COVID-19 pandemic.

Share Price Performance

(Source: Refinitiv, Thomson Reuters) -1-Year Chart as of June 5th, 2020, after the market close

CAL’s shares closed at GBX 117.80 on 5^th June 2020. Stock's 52 weeks High is GBX 302.50 and Low is GBX 66.21. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 121.71 million.

Outlook

While the retail environment clearly stays volatile, and the impact of COVID-19 is likely to be significant, the Company is watchful on delivering for all the stakeholders in this challenging and unprecedented time. In FY19, the Company demonstrated resilient performance. The Group has a robust leasing performance against a tough operating backdrop and a significantly improved balance sheet security. The strength of the company is the tenants of the retail portfolio, and this represents the opportunity with decent rental growth in rent review and lease renewal.

London Stock Exchange Group PLC (LON:LSE) – Remains Well-Positioned for Future Growth Despite Complex Backdrop

London Stock Exchange manages infrastructure for global financial markets by providing services related to Data and Analytics, Processing Solutions, Collateral & Processing Solutions and Trade Execution & Capital Formation. It operates majorly through the following business segments:

• Information Services: Provides a range of information and data products including, indexes and benchmarks.
• Post-Trade Services LCH: Provides clearing services through which counterparty risk is mitigated across multiple asset
• Capital Markets: Provides access to capital for domestic and international businesses and electronic platforms for secondary market trading of equities, bonds, and derivatives.
• Group Technology: Caters to businesses and customers that require higher levels of availability and throughput.

Geographically, the Group generates around 40 per cent revenue from the United Kingdom, 28% from North America, and the remaining 32% from the Rest of World.

(Source: Presentation, Company Website)

Recent Significant Developments of 2020

19^th May 2020: MTS Markets International has expanded its reach in Mexico, with its marketing agreement with MPS (Marco Polo Securities), reflecting growth in global electronic volumes and increasing demand for a new trading model for fixed income traders.

21^st April 2020: In the annual general meeting, the Group announced a final dividend of 49.9 pence per share, resulting in a 16 per cent increase in full-year dividend of 70.0 pence per share.

Trading Update - Good Financial Performance, Despite the Unprecedented Period

On 21st April 2020, London Stock Exchange Group released an update on the trading for three months period ending 31st March 2020. During the period, despite the unprecedented market backdrop, Company showed decent performance for the period. Driven by higher clearing activity and increased equity trading, the Group’s total income surged by 13 per cent to GBP 615 million on a year-on-year basis. Other Points to be highlighted below:

• The Company’s resources are focused on delivering decent operational performance and smooth running of its market infrastructure services and platforms.
• The Group has received approval from CFIUS for the integration of Refinitiv and it is committed to complete the integration in the second half of the financial year 2020.
• Led by 8 per cent growth in FTSE Russell, the Group’s Information Services revenue went up by 7 per cent to GBP 215 million, while the post-trade revenue increased by 17 per cent to 271 million for the period, driven by 11 per cent growth in LCH revenue.
• With an increase in the higher secondary market’s activities in Milan and London, the LSE’s revenue from Capital Markets surged by 15 per cent to GBP 112 million. Whilst, the revenues from Technology Services remained the same as GBP 14 million for the period.

Share Price Performance

(Source: Refinitiv, Thomson Reuters) -1-Year Chart as of June 5th, 2020, after the market close

LSE’s shares closed at GBX 8,072 on 5th June 2020. Stock's 52 weeks High is GBX 8,628.00 and Low is GBX 5,298.00. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 28.21 billion.

Outlook

Considering current circumstances, the Group frequently assesses the forte of its balance sheet and stress-tests its liquidity positions under several market scenarios. The Company believes that it has no need to adjust any of its operations or incur high additional costs materially and has enough cash resources and access to liquidity to maintain continuity of business. On 31st March 2020, LSE had committed facility of more than GBP 600 million available for general corporate purposes. Reflecting the ongoing financial strength and decent 2019 results, London Stock Exchange Group intends to pay its final dividend per share in relation to the financial year 2019. Whilst the Company is in well-positioned in Q1 FY20, it is too early to say anything about the impact of the COVID-19 pandemic on its customers for the remainder of the year and the outlook for LSEG.