Analyst Note| Niklas Kammer, CFA |
Wide-moat London Stock Exchange Group, or LSEG, reported revenue of GBP 1.70 billion for the third quarter, up 7.60% on an underlying and constant currency basis. While this performance is well ahead of our expectation for the full year of 4.20% growth and even ahead of the group’s guidance of 4%-5% growth, its share price responded poorly, dropping 4% in the first hour of trading. Potential drivers of this reaction are: management highlighting it expects growth to slow in the fourth quarter, supply chain issues delaying some of its tech-related spending, a core driver of its growth this quarter stemming from its capital markets business rather than data, and an embarrassing outage on it its own website displaying market data. We don’t believe either of these points warrant a decline in share price as we either believe they are not material to fundamentals or are already baked into our assumptions. We don’t change our fair value estimate of GBX 9,200 per share and wide moat rating and believe LSEG offers great value for investors looking for a high-quality and well-diversified business with a strong growth outlook.