$LSEG (+1,52 %) Anyone know what brought about the relatively sharp drop in share price the other day? At the time, UK stocks still looked pretty stable. Can't find any news that would explain it.
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ISIN: GB00B0SWJX34
Ticker: LSEG
GB00B0SWJX34
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33Lun·
Can quality still be found in the UK?
Quality businesses share a few characteristics. They usually have roomy profit margins, generate plenty of cash and achieve good growth relative to the amount they invest. There is also a less tangible trait that many of these companies have in common – they are a little dull and boring.
Data giant Relx and industrial supplier Diploma ($DPLM (-0,22 %)) don’t set my pulse racing, nor does London Stock Exchange ($LSEG (+1,52 %)). Yet sometimes, however, a steady (boring) company is exactly what you need. All three of these companies have proved they can grow in good times and bad, and benefit from reliable revenues and loyal customers.
On the other hand, sometimes you need to follow boring companies as they try to shake their boring reputation! I’m writing this in a Cafe at Marks and Spencer ($MKS (+3,03 %)), who are thriving precisely because it has managed to shed its stale reputation and revitalise its clothing division. Combined with a reliable food business (which I love!) and supply chain improvements, this has led to multiple earnings upgrades and a brighter future.
Similarly, Trainline ($TRN (+0,3 %)), a travel app which only listed in 2019 and was still posting pre-tax losses in 2022, now has metrics which are improving rapidly as operational gearing kicks in, and the group boasts double-digit operating margins, a high return on capital employed and a very dominant market position.
Where else do you see value in the UK market?
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Saschko@WarrenamBuffet
3Lun
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5Lun·
London Stock Exchange Group Q3 2024 $LSEG (+1,52 %)
Financial performance
- Total income: The company reported an increase in total income of 9.5% on a constant currency basis, with organic growth of 8.7%. This reflects a strong performance across all areas, particularly in Capital Markets and Data & Analytics.
- Organic growth: Data & Analytics grew by 4.6%, while FTSE Russell was up 9.2% and Capital Markets grew by an impressive 22.4%.
Balance sheet analysis
- Acquisition of the LCH Group: The company increased its stake in LCH Group to 94.2% by acquiring an additional 8.3% stake for €433 million.
Profit and loss account
- Sales driver: FTSE Russell subscription sales increased by 13.1%, driven by demand for equity indices and benchmarks.
- Cost of sales: Cost of sales increased by 3.6%, below the rate of revenue growth, indicating improved operational efficiency.
Cash flow analysis
- Debt instruments: The company raised approximately £575 million via a €600 million bond and a $100 million private placement, both with a maturity of three years.
Key metrics and profitability
- ASV growth: Annual subscription value (ASV) growth was 6.0%, in line with guidance.
- Gross profit: Gross profit increased by 9.2%, slightly ahead of overall revenue growth, due to slower growth in cost of sales.
Segment analysis
- Data & Analytics: This segment recorded growth of 4.6%, supported by high customer retention and sales.
- Capital Markets: Experienced impressive growth of 22.4%, driven by strong performance at Tradeweb and increased market activity.
Competitive analysis
- FTSE Russell: Despite the termination of an ETF contract, the brand saw strong subscription growth, indicating robust market demand.
Management forecasts and comments
- Future growth: Management expressed confidence in continued growth until 2025, supported by ongoing product innovation and strategic partnerships, particularly with Microsoft.
Risks and opportunities
- Risks: The termination of an ETF contract and the impact of cancellations by Credit Suisse pose challenges.
- Opportunities: The partnership with Microsoft and the launch of new products such as DataScope on Snowflake offer significant growth opportunities.
Summary and strategic implications
The company is on a strong growth trajectory, driven by strategic acquisitions, product innovation and robust market demand in its segments. The partnership with Microsoft is a key strategic initiative that is expected to enhance product offerings and drive future growth. However, the company will need to carefully manage the risks associated with contract terminations and market volatility to maintain its growth momentum. An exciting company in transition, but as I have too many of these companies at the moment, one is just on the watchlist.
Positive statements:
- The company had a particularly strong quarter with healthy growth in its subscription business and a very strong performance in high quality volume based businesses.
- FTSE Russell continued its strong subscription momentum, growing 13.1%, driven by demand for leading equity indices and benchmarks.
- Tradeweb's stellar year continued, supported by strong execution and very good market conditions, with market share growth in US investment grade and high yield.
- Organic growth in data and analytics was 4.6%, driven by continued strong client retention, good sales and price consistent performance compared to the first half of the year.
- The partnership with Microsoft is progressing well, with product development on track to meet the product launch schedule.
Negative statements:
- The termination of an ETF contract led to a slowdown in asset-based revenue growth at FTSE Russell.
- Securities and reporting fell by 11.1% due to the full exit from Euronext in September.
- Net treasury income fell by 5.5% due to the impact of the Euronext exit.
- The slight decline in ASV growth from 6.4 % to 6.0 % was due to a small additional impact from cancelations at Credit Suisse.
- The migration of customers from Eikon to Workspace is taking longer than originally expected, with some customers asking for more time.
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It's exemplary how intensively you deal with your (potential) investments. Many people can take a leaf out of your book. And thank you for sharing this with us. How much time do you spend on analysis each week?
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