Performance Of London Stock Exchange Group PLC (LSE) In A Rapidly Transforming Market

  • Feb 23, 2019 GMT
  • Team Kalkine
Performance Of London Stock Exchange Group PLC (LSE) In A Rapidly Transforming Market

Overview

London Stock Exchange Group plc is engaged in financial market infrastructure business; founded in 1698 and headquartered in London, the United Kingdom. The group operates worldwide in the United Kingdom, Italy, France and the United States. It provides services for investors, corporate and trading firms related to equities, fixed income, financial derivatives and other products. The Company organised its business units based on its services and has six reported segments being Post Trade LCH, CC&G and Monte Titoli, Information, Services, Capital Markets, Technology and other services. The Company also provide after trading services, risk management and balance sheet management solutions.

Key Management Team

  • David Schwimmer: CEO
  • David Warren: CFO
  • Chris Corrado: COO, CIO
  • Diane Côté: Chief Risk Officer

Segment wise performance – 1H FY2018 (£, million)

(Source: Half Yearly Report, Company Website)

Segment Performance Commentary

  • In the first half of the financial year 2018, reported revenue from the Information Services segment was £412 million, up by 16 per cent against last year.
  • Post-Trade Services - LCH, contributed £320 million in total income reflecting an increase of 18 per cent as compared to last year data.
  • In H1 FY18, Capital Markets segment reported revenue was £215 million, a surge of 13 per cent against previous year.
  • In the first half of FY 2018, Technology Services revenue declined to £40 million from £49 million, down by 18 per cent when compared with last year.

Financial Results and Review - 1H FY2018 (£, million)

(Source: Half Yearly Report, Company Website)

 

Financial Commentary – H1 FY2018

  • In H1 FY18, Revenue increased to £953 million (H1 2017: £853 million), reflecting an increase of 12 per cent,
  • Cost of sales surged by 4 per cent to £106 million in the first half 2018, primarily as a result of the growth in FTSE Russell and LCH segment. Gross profit increased by 13 per cent to £954 million (H1 2017: £844 million).
  • Adjusted operating profit for the period increased to £480 million by 21 per cent (H1 2017: £398 million). Operating profit also rose to £393 million by 29 per cent (H1 2017: £305 million).
  • Adjusted basic EPS had increased to 88.7 pence by 25 per cent (H1 2017: 71.2 pence) while basic EPS was 71.1 pence for H1 2018.
  • Net cash inflow from operating activities surged by around 10 per cent to £287 million in H1 2018.

Ratios

(Source: Thomson Reuters)

Ratios Commentary

  • Gross margin reported was 90 per cent in the first half of financial year 2018, reflecting an increase of 0.8 per cent when compared with last year data.
  • EBITDA margin of 51.60 per cent for first half of financial year 2018 stood considerably higher than the industry median of 36.70 per cent.
  • Return on equity stood at 7.40 per cent which was lower than the industry median of 8.2 per cent.
  • At liquidity front, London Stock Exchange Group PLC liquidity position was lower than the industry median of 1.89.
  • On leverage front, the debt-equity ratio was significantly higher as compared to the industry median, indicating that the company is highly leveraged and uses debt as a major source for financing business activities.

Share Price Commentary 

  • On 22nd February 2019, London Stock Exchange Group PLC share closed at GBp 4,510 up by 0.02 per cent against its previous day closing price.
  • Stock’s 52 weeks High and Low is GBp 4,814.00/GBp 3,797.00. At the closing price, the share was trading 6.31 per cent lower than its 52w High and 18.78 per cent higher than its 52w low.
  • From the previous three months, London Stock Exchange Group PLC share price rose significantly by 12.75 per cent and in the last one year, stock has delivered 10.40 per cent returns.
  • Stock’s average traded volume for 5 days was 602,652.20; 30 days - 636,832.73 and 90 days - 701,108.58. The average traded volume for 5 days was down by 5.37 per cent as compared to 30 days average traded volume.
  • On the valuation front, the stock was trading at a trailing twelve months PE multiple of 26.9x as compared to the industry median of 11.9x.
  • The company’s stock beta was 0.70, reflecting relatively low volatility as compared to the benchmark index.
  • Total outstanding market capitalisation was around £15.70 billion and a dividend yield of 1.21 per cent.

Recent News

On January 22, 2019, the London stock exchange entered into the cryptocurrency industry by selling its Millennium Exchange matching system to AAX exchange. This was LSE’s first sale deal to start cryptocurrency exchange.

Growth Prospects and Risks Assessments

  • Investment in future business helps in achieving further sales growth and operational efficiencies.
  • A well-balanced approach to evolve in the regulatory and macroeconomic environment.
  • To meet the new regulations group needs to implement new processes, failing to do so would increase the compliance risk.
  • Acquisitions to match rapid transformation may increase integration risks and expected synergies may not be achieved.

Conclusion

While broad-based challenges can be seen ahead of the group, given the current trading levels which indicate the stock movement towards 52-week high with support coming from few growth drivers like acquisitions for rapid transformation in line with balanced approach, the market can keep a watch on London Stock Exchange Group PLC stock going ahead.

 

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