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LSE tries to impress on two fronts

London Stock Exchange shows why it is always a worry when a venerable institution decides it needs to be exciting
LSE tries to impress on two fronts

 

  • Concerns over capex commitments
  • High level of intangibles – impairment risk

Trying to get to grips with the London Stock Exchange’s (LSEG) half-year results was always going to be a challenge after the group pulled off one of the biggest M&A deals in the UK last year with its $27bn (£19bn) takeover of data and analytics provider Refinitiv. This involved selling off Borsa Italia for €4bn (£3.38bn) and taking on significant amounts of debt to fund the rest. The deal puts the LSE in a situation where three-quarters of its revenues are now derived purely from data and analytics, rather than its traditional market-making activities.

One of the main areas of concern for investors is that the LSE is having to spend more on achieving cost savings than it is likely to get back from combining the two group’s operations. For example, the total capex for the year ahead is expected to be £850m, with total projected savings of £125m. A good portion of that expenditure would have taken place anyway in both companies prior to the acquisition, but it still leaves the impression that there isn’t that much fat to cut.

The irony is that 2021 is proving to be a banner year for traditional stock exchange activities. For instance, LSE’s capital markets division brought 75 new listings to market in the half alone, compared with 30 new issues for the whole of last year.

Investors are going to look nervously at a balance sheet that now has nearly £31bn of mostly acquired intangibles. If the management has miscalculated its ability to push through such a big merger – neither the chairman nor the chief executive has a track record in this area – then years of write-downs could lie ahead. Sell.

Last IC View: Hold, 9,028p, 5 Mar 2021

LONDON STOCK EXCHANGE (LSEG)  
ORD PRICE:7,728pMARKET VALUE:£ 43bn
TOUCH:7,726-7,734p12-MONTH HIGH:10,010pLOW: 6,854p
DIVIDEND YIELD:1.0%PE RATIO:71
NET ASSET VALUE:4,137p*NET DEBT:23%
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20200.8826245.123.3
20212.9951034.325.0
% change+241+95-24+6
Ex-div:19 Aug   
Payment:21 Sep   
*Includes intangible assets of £31.7bn, or 5,702p a share