London Stock Exchange Group Earnings: Growth Across All Segments, but Focus on Data Revenue Outlook

London Stock Exchange Group LSEG had an overall good first half in 2023. Adjusted EBITDA for the first six months came in at GBP 1,872 million, 2% below consensus estimates, driven by higher-than-expected operating expenses (21% adjusted and 6% on organic basis) due to inflationary pressures. Income growth (12%) remains good, however, as the exchange group showed growth across all segments. We maintain our GBX 9,800 per share fair value estimate and wide moat.

Data and analytics showed a strong top-line performance, up nearly 8% on a constant-currency basis compared with the same period last year. The sequential progression looks more muted, however. Annual subscription value growth slowing to 6.9% in the second quarter from 7.6% in the first quarter was still an overall good showing, but it will undoubtedly put greater focus on revenue growth progression in the data segment over the coming quarters. Management highlighted a strong book and as a result was building expectations for a stronger second half of the year as well. Missing these expectations could have a negative effect on share price, as not only is the data and analytics segment the largest contributor to income for the exchange group, but also we believe the market’s narrative and our thesis on LSEG would be challenged if growth were to slow down in this segment. Management further pointed toward income in the data segment being increasingly driven by new sales rather than retention, which is a positive, resulting in greater lumpiness of income recognition in any given quarter. This suggests to us that the data and analytics segment should catch up in the second half.

Post-trade had a good first half of the year, with income growing 19% on a constant-currency basis. A good performance in over-the-counter derivatives stood out positively.