What's new
■ Average daily value traded in UK equities down 35 per cent
■ Derivatives operations sees 3 per cent rise in contract volumes
■ Number of UK terminals down 12 per cent
Average daily traded volume in UK equities fell 35 per cent year-on-year to £4.6bn in the London Stock Exchange (LSE) in the 11 months to 28 February, although the trend towards the end of the period pointed to an upturn in activity. January's average was higher at £4.9bn and February higher still at £5.1bn.
The LSE has been busy trying to retain business in the face of growing competition from other clearing platforms which has included a reduction in tariffs. The group also recently acquired rival execution system Turquoise, which will help to pave the way for the creation of a new pan-European trading venture through a merger between Turquoise and Baikal, the LSE's multilateral clearing and settlement trading facility.
And the LSE is signing up other interested parties, recently selling 9 per cent of its stake in the new venture to three global banking clients, bringing the number of investment shareholders in Turquoise to 12. Merger-related costs are expected to total £20m.
Meanwhile, overall contract volumes from the group's derivatives operations grew by 3 per cent, underpinned by a 16 per rise in volume on IDEM, the Italian equity derivatives market, as a result of introducing more favourable tariff charges. However, EDX London, which provides futures and options trading on a range of markets, saw trading volume slip by 4 per cent as a result of a slide in trading in Scandinavian derivatives.
Numis Securities says...
Add. The latest update is broadly in line with our expectations, with lower than expected primary capital market revenue offset by higher than forecast revenue in secondary capital markets. The LSE bought Millennium IT late last year for £18m, and the Sri-Lankan based technology services group is expected to work with inter-dealer broker Tullett Prebon to develop an electronic trading platform. Trading on 12 times 2011 forecast EPS, LSE shares trade at a discount to relative US and European exchanges. Expect 2010 pre-tax profits of £228m and EPS of 56p, rising to £249m and 61.4p in 2011.
UBS says...
Neutral. The LSE reported a 2 per cent rise in clearing volumes in the post trade services division, although assets under custody remained flat. However, in the information and technology sector, there was a 2-3 per cent fall in the number of terminals connected in the last quarter against our expectations of no change. Overall, we expect EPS to come in below our earlier estimates, reflecting a rise in pressure from competing trading platforms. For 2010, expect cash profits of £279m and EPS of 59.1p, rising to £305m and 65.9p, respectively, in 2011.
