Summary

  • London Stock Exchange Group Plc reported a revenue increase of 2% year on year in Q3 FY20.
  • The proposed acquisition of Refinitiv is in good shape.

London Stock Exchange Group Plc (LON: LSE) is the LSE listed stock in the financial sector. Based on 1-year performance, shares of LSE were up by around 21.66%, and it last traded at GBX 8,438.00 (as on 23 October 2020, after the market close).

Is LSE's high amount of debt a concern?

 

London Stock Exchange Group Plc is an FTSE 100 listed global financial markets infrastructure business focusing on Information Services, Risk & Balance Sheet Management and Capital Formation.

Q3 FY20 trading update as reported on 23 October 2020

As per the update released on 23 October 2020, the Company has shown resilient performance for Q3 ended 30 September 2020. In Q3 FY20, the Group reported a revenue increase of 2% year on year to £524 million and nine months revenue increased by 3% year on year to £1,582 million despite challenging market conditions.

Information Services revenue increased by 1% year on year to £223 million for Q3 on account of a 4% increase in Subscription revenue at FTSE Russell. Post Trade income increased by 2% year on year for Q3 while, revenues from Capital markets remained flat for the same period. Primary markets revenue has increased on account of good issuance activity whereas, equities trading revenue decreased due to reduced market activity.

(Source: Company Website)

Key Developments

Information Services – FTSE Russell has collaborated with Singapore Exchange for development of Asian and emerging markets index derivatives. FTSE Russel also launched their Green Revolution 2.0 Data Model, which will evaluate the green revenue exposure of more than 16,000 listed companies.

Post Trade – London clearing house (LCH) has become the first clearinghouse dealing with Israeli Shekel-denominated interest rate swaps.

 

Capital Markets -  The hut group has become the largest technology IPO by market capitalization listed on the London Stock Exchange.

 

Refinitiv Transaction Update

The proposed acquisition of Refinitiv is making significant progress, and the Group has also received foreign investment clearance from the Italian Government for the transaction.

On 9 October, LSE announced that it has decided to divest its shareholdings in London Stock Exchange Group Holdings Italia S.p.A., the parent company of the Borsa Italiana group, to Euronext N.V. for an all-cash payment of €4.325 billion. The Group will further utilize net proceeds from divestment towards repayment of the debt and bring the net debt target to adjusted EBITDA ratio of 1.0x - 2.0x.

The group has decided to divest its shareholdings in London Stock Exchange Group Holdings Italia S.p.A., the parent company of the Borsa Italiana group, to Euronext N.V. for an all-cash consideration of €4.325 billion. The date of the agreement was 09 Oct 2020. The group will further utilize net proceeds from divestment towards repayment of the debt and bring the net debt target to adjusted EBITDA ratio of 1.0x – 2.0x. The divestment required further approval from both LSEG and Euronext shareholders. Refinitiv has realised its own cost efficiencies and achieved the annualised run-rate cost savings of $613 million as at 30 September 2020 and is on-track to achieve the full $650 million run-rate target by the end of this year.

Financial Highlights (for the half-year ended 30 June 2020)

(Source: Company Website)

In H1 FY20, total income surged by 8% year-on-year to £1.24 billion. Similarly, gross profit increased by 8% to £1.11 billion in H1 FY20 against £1.03 billion in H1 FY19. Regarding the financial position, the Group had an operating net debt of £1.90 billion in H1 FY20 against  £1.75 billion at the end of FY19.

Share Price Performance Analysis of London Stock Exchange Group Plc

(Source: Refinitiv, chart created by Kalkine Group)

London Stock Exchange Group Plc's shares last traded at GBX 8,438.00 (as on 23 October 2020, after the market close). LSE's 52-week High and Low were GBX 9,216.00 and GBX 5,806.00, respectively. London Stock Exchange Group Plc had a market capitalization of around £29.89 billion.

Business Outlook

The Group has given resilient performance so far in 2020 despite unprecedented circumstances and challenges caused by Covid 19 & Brexit. It is quite challenging to adapt towards changing working patterns, consumer preferences and product development, adding a lot of uncertainties. Credit rating agencies like Moody's and S&P have given a gloomy outlook for the Group considering the debt component of Refinitiv acquisition. However, both agencies were quite optimistic about the strategic rationale of the Refinitiv deal.

 

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