LSEG reported first-half revenue of £4.5bn, reflecting underlying growth of 7.8%. Performance reflected broad-based growth across all business units. Recurring revenue growth slowed to 5.8%, and there’s expected to be a further hit in the coming quarter.
Underlying operating was up 13.4% to £1.7bn, driven by top-line growth and improving margins.
Free cash flow rose from £651mn to £935mn and net debt, including leases, was £6.3bn at the end of the half.
Guidance was largely unchanged, with full year revenue growth expected between 6.5-7.5%.
A dividend of 47.0p was announced, up 14.6%, alongside a new £1bn buyback (£0.5bn expected).
The shares fell 3.9% in early trading.
Our view
Second-quarter results were pretty good, but markets reacted poorly to slowing recurring revenue (ASV) growth. Competitors are upping their game, offering bundles and lower prices to steal growth from LSEG. Management seemed confident that this wasn’t sustainable, but there’s probably another quarter or two of slowing ASV growth ahead that markets are a little uncomfortable with.
LSEG is more than just a stock exchange. It’s a global leader in financial data and technology. After buying Refinitiv in 2021, a major data and analytics business, LSEG now earns most of its revenue from providing tools and services that financial professionals rely on daily.
The company also benefits from its diversified operations. In addition to data and analytics, LSEG generates revenue from services like clearing and settlement, which help ensure that financial transactions are completed smoothly. This variety of income streams makes LSEG’s business more resilient during market ups and downs.
There’s been a push of late to boost profitability, and the results are starting to bear fruit. Margins are expanding and that’s helping top-line growth drop down into profit and cash. We were pleased to hear management reiterate these efforts into the new year, with the guided £2.4bn free cash flow figure expected to have upside.
The balance sheet is in decent shape, with scope for some add-on acquisitions but we don’t expect any major acquisitions anytime soon. In the meantime, it’s supporting increased shareholder returns, though nothing is guaranteed.
Looking ahead, LSEG is expected to keep growing as it integrates new technology like AI and expands its offerings. Its focus on cloud-based solutions and automation is helping financial institutions save time and money. Plus, the partnership with Microsoft is starting to come to life, with LSEG’s analysis products integrated into programs like Excel and Teams increasing their appeal.
As a major player in global finance, LSEG faces some challenges. The financial industry is heavily regulated, so changes in rules could impact its business. The company also relies on cutting-edge technology, which requires constant investment to stay ahead.
We think LSEG is an attractive business well placed to benefit from growing trends around the electronification of trading, embedding tech into capital markets, and growth in demand for data analysis. But the high earnings multiple doesn’t leave much room for weakness, and we’ve seen shares punished so far this year as competition has ramped up. It may take a couple of quarters for ASV growth to reaccelerate before sentiment improves.
LSEG key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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