London Stock Exchange announces £1bn buyback

There were no nasty surprises in the full-year results from London Stock Exchange (LSEG). The mega-acquisition of Refinitiv is still on track and the group is actually “well ahead” of its original revenue and cost synergy targets. Data and analytics now account for over two-thirds of revenue and the division is growing nicely. Organic growth accelerated to 6.7 per cent in 2023 from 4.9 per cent in 2022, giving management “confidence in the year ahead”. 

The group’s partnership with Microsoft could also soon start bearing fruit, with the first products expected to launch in the first half of 2024. Microsoft has taken a 4 per cent stake in LSEG as part of a decade-long “strategic partnership”.

IPO and equity market trading is far less buoyant, with revenue down 8.5 per cent year on year at £227mn. Stocks and shares have become such a tiny part of the business, however, that investors need not be too concerned. That said, management did refer to an “encouraging IPO pipeline”, which is good news for the City more generally. 

LSEG’s share price dipped by 2 per cent in the wake of its financial results. It is possible that investors were disappointed by its adjusted Ebitda margins, which decreased from 47.8 per cent to 47.2 per cent. However, management stressed that, excluding currency headwinds, the margin came in on target at 47.7 per cent. 

Adjusted Ebitda rose by 6.4 per cent to £3.78bn in the period, and adjusted operating profits increased by 4.9 per cent to £2.86bn. Statutory profits are still under pressure, however, as a result of the amortisation and impairment of intangible assets, which came in at £1.22bn in 2023.

Crucially, however, LSEG is very cash generative, reporting £1.8bn of equity free cash flow. As a result, it has pledged to buy back up to £1bn of shares in 2024 from the Blackstone/Thomson Reuters consortium, which it bought Refinitiv from in 2021.

LSEG remains in a delicate phase of growth. It has yet to fully digest the Refinitiv acquisition and the power of the Microsoft partnership is still untested. However, both these things could ultimately prove transformational and – for now – the data powerhouse is firmly on track. It is also significantly cheaper than its US peers, with a forward price/earnings ratio of 24. Buy.

Last IC view: Buy, 9,274p, 4 Jan 2024