LSE reports progress with Refinitiv acquisition

The buzzwords flew like tennis serves at London Stock Exchange’s (LSEG) results briefing as chief executive David Schwimmer confidently reeled off the cliches to describe its full-year results; “transformational” was followed swiftly by “synergistic” with extra points awarded for “synergy delivery”.

In short, LSEG these days has more in common with Silicon Valley tech firms – there is even a partnership with Microsoft (MSFT) – than providing the plumbing for the capital markets of yesteryear. For all that, the market’s reaction to the results was muted as much of its performance had been predicted beforehand, and investors were offered few indications of the company’s direction. That the London exchange itself seems to find it difficult to attract new listings, and is struggling to retain the ones it has is a little besides the point in this context.

Overall, the results were solid, with integration costs, in particular, showing signs of progress. The company now expects £550mn-£600mn of exceptional costs between 2021 and 2025, down from the £725mn forecast at the last results, while the run rate on cost savings was upped by £50mn to £400mn. LSE also expects to achieve this run rate by the end of the year, or two years earlier than expected. This should mollify the negative sentiment that the purchase of data provider Refinitiv initially generated. Operationally, the data and analytics division reported revenues of £4.9bn, up an underlying 4 per cent, while Capital Markets was 10 per cent higher at £1.5bn.

Part of the concern about the deal was the perception that Refinitiv’s former owner, Reuters, had underinvested in the business and that bringing this up to scratch would cost large sums. During the year, the company’s capital expenditure was £966mn, which was ahead of the depreciation charge of £822mn. In other words, LSEG seems to be getting on top of Refinitiv’s clunky product offering by updating its systems. Chief executive Schwimmer noted that LSEG had now done most of the heavy lifting when it came to integrating the business.

Refinitiv needed LSEG’s massive free cash flows to renovate its business, but questions over whether the merger has created yet another ‘odd couple‘ situation are hard to dispel. LSEG’s ability to invest and deliver consistent shareholder returns lies behind its rating of 21 times consensus forecasts. Solid, but fully valued. Hold.

Last IC view: Hold, 8,427p, 5 August 2022