The London Stock Exchange share price has come in for more than its fair share of criticism this year. However, many of the problems facing the London equity markets are down to structural and legislative issues, outside of the Exchange’s remit, and under the purview of the regulator and the government.
For its part the LSE is trying to open its market to retail traders through data access and participation initiatives.
However, the LSEG, as the parent company is often referred to, is far more than an exchange operator these days.
Some 23% of revenue growth at the business is expected to be generated from market data and feeds by 2026, according to research from US broker Jefferies.
Jefferies also points out that there are further opportunities for LSEG to leverage its position as the owner of one of the world’s largest and most valuable financial data sets.
Indeed the LSEG outperformed key data rivals S&P, ICE, Morningstar and Nasdaq in terms of the amount of data revenue it generated, and its growth rate, in both 2022 and 2023.
LSEG is now forecast to repeat that trick across 2024, 2025 and 2026, with a data revenue growth rate of +7.70%.
JP Morgan has also written on LSEG recently and named it as one of its preferred picks among European Diversified Financials. As with Jefferies, JP Morgan has a 13500p price target on the stock, some +19.0% above the current level.
LSEG has a 10- year dividend growth record of +15.38% and is one of a clutch of London listed stocks that has a continuous history of dividend payment. Though at the moment the dividend yield is only just over 1.0%.
However there is scope for that to grow in future, alongside metrics such as ROIC or Return on Invested Capital, which analysts believe will expand rapidly as the company further leverages its data lake.
There is no doubt that LSEG’s purchase of Refinitiv has left it with a treasure trove of international market data, in a period when investors of all hues are keen to access and analyse more information than ever. Particularly if they can generate additional value and insights through the deployment of AI.
Just how well LSEG works with customers in surfacing nuggets of valuable information, using AI could well determine how quickly the business grows..
Summary
There is undoubtedly an exciting opportunity ahead of LSEG, but as with many of its peers the trick will be keeping the costs of deploying generative AI well below the additional returns it can generate for the company.
I am going to rate the stock as 4 out 4.
Pros
- Strong data growth
- AI-driven opportunities
- Consistent dividend record
Cons
- Low dividend yield
- High AI deployment costs
- Structural market challenges
- LSE Outlook (4)
Overall
4
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