From thwarted plots by activists to concerns over Britain’s beleaguered stock market, the London Stock Exchange Group (LSEG) is frequently in the news.
However, since it is a publicly traded company, it appears to be growing steadily. The company’s share price has a Morningstar 3-star rating and has risen 92.79% over the past five years to £88.26.
Additionally, the UK business had a cumulative return of over 95.89% over the same period, outperforming the Morningstar UK Index, which returned only 25.40%. Morningstar analysts argue that the company is undervalued, based on a fair value estimate of £90.08.
Why do fund managers like LSEG stock?
LSEG is a favorite of some prominent fund managers.and it is in spite of A moment of alarm.
British fund house Linsell Train is LSEG’s biggest backer, owning the company with both Finsbury Growth & Income Trust (FGT), Linsell Train Investment Trust (LTI) and WS Linsell Train UK Equity Fund. Owned. The company accounts for 12.60%, 11.10% and 9.88% of each portfolio, respectively.
Founder and portfolio manager Nick Train points out that LSEG shares are trading below their previous high of £98.56 in February 2021, in his latest comments on the Linsell Train UK Equity Fund. are doing.
He said investors were understandably cautious after LSEG completed its transformative acquisition of data giant Refinitiv for around $27bn (£21.4bn). Their concerns included concerns that Refinitiv’s former owners may have to “burn through” billions of pounds of LSEG shares as they slowly sell them. , it was also focused on the image of Britain as a tame market.
However, neither has affected LSEG’s performance.
“Despite all this, LSEG’s share price rose 32% in 2023. The merger proceeded smoothly. The consortium was successful in disposing of most of the shares, and the London Stock Exchange itself is now owned by the parent company. It’s less than 4% of revenue,” Train says.
“Meanwhile, a group was created that is the world’s largest real-time financial data provider. LSEG is now a globally significant provider of data, clearing and liquidity to financial institutions.”
LSEG: Perception vs Reality
Train is not alone in his optimism.
Matt Evans is the lead portfolio manager for Ninety One’s UK Sustainable Equity Fund, which holds LSEG at 5.8% of its portfolio. He points to LSEG’s recent partnership with Microsoft as an appropriate response to the rise of artificial intelligence (AI).
In 2022, Microsoft purchased a 4% stake in LSEG, securing a board seat in a 10-year strategic partnership with the London-based company to build bespoke generative AI models.
“One of the opportunities for LSEG today, with the breadth and depth of our datasets, is to leverage AI to give our customers better tools to actually do more with their datasets,” he said. says.
“And when you combine this with the recently announced partnership with Microsoft, one of the leading companies in software development, we have a credible proposition that LSE and Refinitiv can become one of the leading companies in this space. become.”
But Evans also cites image issues as an issue. Indeed, he agrees that the group has fought against companies reluctant to go public in London. For example, a 2023 survey of small and mid-cap stocks by Quoted Companies Alliance found that one in four companies saw no benefit in listing in London.
This will continue into 2023, with a growing list of companies looking to seize opportunities on Wall Street rather than the once totemic British capital, with companies from Arm to YouGov considering whether to make the leap across the pond. are doing.
But Evans is unfazed by this and supports LSEG. because He feels he can sell the benefits of London Float to potential list participants.
“It is very important to highlight some of the advantages that London can offer. Access to capital is important and our governance standards are higher, but there are questions about how they should be implemented. there is,” he says.
“However, it is a real benefit for investors for companies to be listed in London and access through the LSE is hugely beneficial for the entire corporate PLC ecosystem.”
He added that UK data businesses such as RELX (REL) and Experian (EXPN), which are listed in London, are unchecked global businesses. LSE’s capital markets division will also continue to be profitable, even if it contributes less to the group’s overall earnings.
Morningstar Key Indicators for LSEG Stock:
• Fair value estimate: £90.08
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
want to know more?Read more about our Fair Value Estimates, Morningstar Ratings, Morningstar Economic Moat Ratings, and Morningstar Uncertainty Ratings
What obstacles does LSEG face?
Morningstar equity analyst Niklas Comer said LSEG could face some obstacles.
“Wide margins and opaque pricing practices by index providers could lead to increased scrutiny in the future,” he said.
“Achieving a successful acquisition of Refinitiv may be much more difficult than expected.” [so it] LSEG currently relies more heavily on data and distribution than exchange-driven revenue compared to its peers, so it could end up letting the dog’s tail wag. ”
Nevertheless, Nick Shenton, fund manager at Artemis Income, where LSEG accounts for 4.3% of the total portfolio, remains satisfied. He recognizes the challenges as capital leaves London, but still believes the business is ripe with opportunity.
“What we’re saying is that LSEG shareholders have an opportunity because perception doesn’t match reality. The reality is overwhelmingly that LSEG is the beneficiary of the technology itself.” he says.
“We are always looking to the world to learn about business, and LSEG is doing just that. It’s business.”
bulls say
LSEG is a fully integrated financial exchange with core assets along the financial market value chain.
Bears Say
Wide margins and opaque pricing practices by index providers may lead to increased regulatory scrutiny in the future.