London Stock Exchange (LSE): Diversifying income sources with Refinitiv buy
- Acquiring Refinitiv for US$27 billion with own highly-valued shares, but faces uncertain regulatory review
- Shares trading near record highs (£58)
- Watch for some corrective price action
One of the best currencies a listed corporate can use is its own highly-valued shares. Astute corporate financiers certainly understood this. In 2000, AOL deployed its hugely inflated shares to takeover Time Warner for a staggering $162 billion. It was a brazen move.
While London Stock Exchange’s $27 billion recent takeover of Refinitiv, a data and analytics company, is on a much smaller scale, LSE said it will issue shares to fund this takeover. A quick look at LSE’s share chart tells you why the firm adopts this tactic.
At its lows in 2009, LSE share prices were trading at around 400p; now, 5,600p. The market correction in 2018 and the messy departure of the long-time CEO Xavier Rolet did not reverse LSE’s bull trend. On the contrary, prices soon raced to new highs in April this year, in an orderly fashion that indicates steady investor accumulation (see below).
Currently, the market dividend yield of LSE is about 1%, while its price-earnings ratio is a rich 41.7. LSE’s market capitalisation is valued at about £20 billion. So it some ways the Refinitiv deal is a transformational one for the LSE.
Given that LSE share prices are now stretched against its long-term trend, as proxied by the 40-week exponential moving average, some caution are certainly warranted. A reversion to its long-term trend is not to be discounted.
Another indicator of how LSE will perform comes from its overseas peers, such as Nasdaq (LDAQ), Intercontinental (ICE) and Deutsche Bourse (DB1). These exchange stocks have displayed long-term bull trends like LSE, although some correction action are noted in the first two.
Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world’s largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.