London Stock Exchange Group Plc (LSE)

London Stock Exchange Group Plc (LSE) is a London, United Kingdom-headquartered company which engages in international markets infrastructure business, operating a wide range of equity, ETF, bond and derivatives markets. The company is also a global leader in analytic services, benchmarking and financial indexing, and offers market participants unrivalled access to capital markets in Europe.  Lindsell Train Ltd., Capital Research & Management Co. (World Investors), and BlackRock Investment Management (UK) Ltd. are the major institutional investors in the group. (Source: Thomson Reuters).

Recent Development
In the exchange filing made by the group as on September 13, 2019, the company reported that it had rebuffed the take-over offer proposed by Hong Kong Exchange and Clearing Limited (HKEX) to acquire the total share capital of the London Stock Exchange Group.

Interim Results: H1 FY19
As on August 01, 2019, the group reported its interim results for the six months ended on June 30, 2019. Despite challenging market conditions, the group’s revenue recorded a growth of 7% on a YoY basis and stood at £1,018m and total income increased by 8% to £1,140m against the same period of the corresponding previous financial year. During the period under consideration, FTSE Russell revenue expanded to £315m from £290m reported in H1FY18 and recorded a growth of 9% on a YoY basis, driven by expansion in subscription and asset-based revenues. Also, post-trade LCH revenue ramped up by 12% to £266m from £237m a year-ago period, led by strong OTC volume in SwapClear Service.

Adjusted operating profit of the group expanded by 11% to £533m from £480m, however on a reported basis, operating profit was up by 2% to £399m and pre-tax profit up just 1% to £363m only. Group's adjusted earnings per share soared up 13% to 100.6p/share from 88.7p/share reported in the year-over period. However, basic earnings per share narrowed marginally by 1% to 70.7p/share from 71.1p/share recorded a year-over period.

The board of the London Stock Exchange declared an interim dividend of 20.1p/share, which was 17% above the dividend declared in the H1 FY18.

Stock Performance
 
Daily Price Chart (as on October 03, 2019), before the market close. (Source: Thomson Reuters)
Shares of the LSE have delivered approximately 55% return in the hand of its shareholders in last one year, surged by 72.53% on a year to date basis and handed approximately 23.4% in the past three months. At the time of writing (as on October 03, 2019, at 02:52 PM GMT), shares of the LSE were quoting at GBX 7,114 and bagged 106 points or 1.51% against the previous closing level. In the year-ago period, it has registered a 52w high of GBX 7,922.0 and a 52w low of GBX 3,842.0.
Valuation Methodology


Conclusion
During the H1 FY19, the group's performance was moderate; also the group's Capital Markets operations face continuing risk from competitors' commercial and technological offerings. There is strong competition for primary listings and capital raising from other global exchanges and regional centres with the increasing take-up of new funding models such as private equity and direct investment.
London Stock Exchange Group’s Information Services business witnesses competition from a range of sources, such as from index providers which offer indices and other benchmarking tools which compete with those offered by the Group, as well as for analytics providers.

However, the stock has performed well above all its competitors and delivered approximately 143% over the last three years, but at the current trading level, its stock’s valuation looks stretched against the industry peer and could witness some correction in the near-term. As in terms of Price-to-Earnings ratio, shares of the LSE were quoting at 51.61x whereas industry average PE multiple stood at 22.9x, which reflects LSE stocks were trading at the steep premium against the industry.

Therefore, based on the above rationale and valuation done using the above methodology, we have given a “Watch” recommendation at the current price of GBX 7,114.0 (as on October 03, 2019, before the market close), while we look for any upcoming catalysts in the near term.

Man Group Plc (EMG)

Man Group Plc (EMG) is a financial services company providing portfolio solutions to clients. The company is an investment management company and actively deploys the latest technologies to keep it in a leading position in the growing industry. Silchester International Investors LLP, M&G Investment Management Ltd. and Aberdeen Asset Investments Ltd. are the major institutional investors in the group. (Source: Thomson Reuters)

Interim Results: H1 FY19

Source: Company filing

During the financial year under consideration, the group's revenue reported a growth of 7.81% on YoY basis and stood at $524m, driven by decent growth recorded in the performance fee on YoY basis. Group's adjusted pre-tax profit growth was moderate as compensation costs shot up higher as a percentage of net revenue against the year-ago period. Statutory diluted earnings per share during the H1 FY19 stood at $5.8c from $4.6c recorded during the same period of the corresponding financial year. However, the dividend declared for the H1 FY19 was lower against the dividend declared in the H1 FY18 and stood at $3.87c.

Stock Performance
 
Daily Price Chart (as on October 03, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (before the market close, at 04:01 PM GMT), shares of the EMG were quoting at GBX 161.0 and declined by 2.5% against the previous traded level. In the year-ago period, its shares have registered a 52w high of GBX 178.10 and a 52w low of GBX 124.08.

Conclusion
The company reported a decent financial performance for the first half of the financial year 2019. The company’s top-line performance has improved for the period. The company has recently undergone a corporate reorganisation which will provide greater flexibility in terms of financing the business. Also, the company operates in multiple geographies, which will help it to mitigate the risks faced in a particular location with the profits generated from other locations.

At the current trading level, the stock was trading quite above its long-term crucial support level, a bullish technical indicator which reflects prices could move up from the current trading level.

Therefore, based on the above rationale, we have given a "Hold" recommendation at the current price of GBX 161.0 (as on October 03, 2019, before the market close). 
 
*All forecasted figures have been taken from Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.