Overview

London Stock Exchange Group plc is engaged in financial market infrastructure business; 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 Statistics


Key Management Team

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

Top 10 Shareholders

Financial Results and Review - FY2018 (£, million)

(Source: Annual Report, Company Website)

Financial Commentary – FY2018

In the financial year 2018, Total income increased to £2,135 million (2017: £1955 million), reflecting an increase of 9 per cent due to an increase in revenue from information services business and LCH business. In the financial year 2018, reported revenue from the Information Services segment was £841 million, up by 14 per cent against last year. Post-Trade Services - LCH, contributed £487 million in total income reflecting an increase of 13 per cent as compared to last year data. In the financial year 2018, Capital Markets segment reported revenue was £407 million, a surge of 4 per cent against the previous year. In FY18, Technology Services revenue declined to £65 million from £91 million, down by 28 per cent when compared with last year. Cost of sales surged by 6 per cent to £227 million in the financial year 2018, primarily as a result of the growth in FTSE Russell and LCH segment. Gross profit increased by 10 per cent to £1,908 million (FY2017: £1,740 million). Adjusted operating profit for the period increased to £931 million by 15 per cent (FY2017: £812 million). Operating profit also rose to £751 million by 20 per cent (FY2017: £626 million).

Financial Ratios

(Source: Thomson Reuters)

Ratios Commentary

Gross margin reported was 89.4 per cent in the financial year 2018, reflecting an increase of 0.4 per cent when compared with last year data. EBITDA margin of 50.3 per cent for the financial year 2018 stood considerably higher than the industry median of 34.6 per cent. Net margin reported was 25.9 per cent in the financial year 2018, reflecting an increase of 3.2 per cent when compared with last year data. Return on equity stood at 14.6 per cent which was lower than the industry median of 15 per cent. At liquidity front, London Stock Exchange Plc’s current ratio was lower than the industry median of 2.16, reflecting the company has insufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio was significantly higher as compared to the industry median, reflecting the company is more leveraged as compared to its peers.

Share Performance 

(Source: Thomson Reuters)

On March 06, 2019, shares of London Stock Exchange Group Plc were trading at GBX 4,732 (before market close), down by 0.06 per cent against its previous day closing price. Stock’s 52 weeks High and Low is GBX 4,814/GBX 3,842. At the time of writing, shares were trading 1.64 per cent lower than its 52w High and 23.24 per cent higher than its 52w low. London Stock Exchange Group Plc share price increased significantly by 17.58 per cent in the last three months (as at March 5, 2019), and in the last one year, the stock has delivered 22 per cent returns. Stock’s average traded volume for 5 days was 884,651.00; 30 days - 606,133.43and 90 days - 675,441.22. The average traded volume for 5 days was up by 45.95 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 27.2x as compared to the industry median of 12.3x. The company’s stock beta was 0.71, reflecting lower volatility as compared to the benchmark index. Total outstanding market capitalisation was around £16.50 billion and a dividend yield of 1.28 per cent. 
 

Valuation Methodology – 1

EV/Sales Multiple Approach (NTM)

While valuing London Stock Exchange Group PLC on EV/Sales Multiple, we have considered Next Twelve Month (NTM) EV/Sales of its peers, which were Ashmore Group Plc (NTM EV/Sales stood at 7.71x), UBS Group AG (NTM EV/Sales stood at 9.92x), Partners Group Holding AG (NTM EV/Sales stood at 14.84x), ABN AMRO Group NV (NTM EV/Sales stood at 5.16x), and Flow Traders NV (NTM EV/Sales stood at 3.74x).
 

Valuation Methodology – 2

EV/EBITDA Multiple Approach (NTM) (EBITDA (FY19E) approx.)

While valuing London Stock Exchange Group PLC on EV/EBITDA Multiple, we have considered Next Twelve Month (NTM) EV/EBITDA of its peers, which were Deutsche Boerse AG (NTM EV/EBITDA stood at 15.52x), Euronext NV (NTM EV/EBITDA stood at 11.19x), CME Group Inc (NTM EV/EBITDA stood at 23.1x), Amundi SA (NTM EV/EBITDA stood at 13.76x), and Ashmore Group Plc (NTM EV/EBITDA stood at 12.25x).

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

Growth Prospects and Risks Assessments

Investment in future business helps in achieving further sales growth and operational efficiencies. To meet the new regulations group needs to implement new processes, failing to do so would increase the compliance risk. The company is persisting for a balanced approach to mitigate such risks. Acquisitions to match rapid transformation may increase integration risks, and expected synergies may not be achieved.

Conclusion

The company has shown good financial performance as compared to the last year. There has been a significant increase in the revenue and earnings of the company. The company is undergoing acquisitions for rapid transformation in line with a balanced approach.  The company’s growth trajectory looks favourable as the current trading levels indicate the stock movement towards 52-week high. With the steady growth prospects of the company and the valuation done using the above two methods, we have given a BUY recommendation with single-digit upside potential (based on 15.2x NTM EV/EBITDA on FY19E EBITDA and 8.3x NTM EV/Sales on FY19E sales).

*The buy recommendation is valid for the current price as covered in the report as on (6th March 2019).

Note- GBp or GBX are interchangeably used for Pence Sterling. 

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