London Stock Exchange: Tech Giant Hiding in Plain Sight?

In
addition,
the
British
business
has
produced
a
cumulative
return
rate
of
over
95.89%
over
that
same
period,
outpacing
the
Morningstar
UK
Index,
which only returned
25.40%. Morningstar
analysts
maintain
the
company
is
undervalued,
based
on
their
Fair
Value
Estimate
of £90.08.

Why
Do
Fund
Managers
Love
LSEG
Stock?

LSEG
is
beloved
of
several
high-profile
fund
managers.
And
that’s despite
moments
of
caution.

UK
fund
house
Lindsell
Train
is
LSEG’s
largest
backer,
and
owns
the
company
in
both
the
Finsbury
Growth
&
Income
Trust
(FGT),
the
Lindsell
Train
Investment
Trust
(LTI)
and
the

WS
Lindsell
Train
UK
Equity fund.
The
company
occupies
12.60%,
11.10%,
and
9.88%
of
each
portfolio,
respectively.

In
founder
and
portfolio
manager
Nick
Train’s
latest
commentary
for the Lindsell Train UK
Equity
fund
he
points
to LSEG’s shares trading
below previous heights
in
February
2021
of
£98.56.

He
says
investors
were
understandably
cautious
after
LSEG completed
its
transformational
acquisition
of
data
giant Refinitiv
for
around
$27
billion
(£21.4
billion).
Their
concerns
included
a
worry
that
they
would
have
to
“digest”
billions
of
pounds
of
LSEG
shares
because
Refinitiv’s
former
owners
were
slowly
selling
theirs
off,
but
also
centred
around
the
UK’s
image
as
a
marketplace
for
the
tame.

Neither
has
hampered
LSEG’s
performance,
however.

“Despite
all
this,
LSEG’s
shares
rose
32%
in
2023. The
merger
has
gone well; the
consortium
has
successfully
disposed
of most
of its
shares
and
the
London
Stock
Exchange
itself
now
amounts
to
less
than
4%
of
the
revenues
of
the
parent,”
Train
says.

“Meanwhile,
a
group
has
been
created
that
is
the
biggest
provider
of
real-time
financial
data
in
the
world.
LSEG
is
now
a globally
significant provider
of
data,
clearing
and
liquidity
to
financial
institutions”.

LSEG:
Perception
vs
Reality

Train
is
not
alone
in
his
optimism.

Matt
Evans
is
the
lead
portfolio
manager
on
Ninety
One’s

UK
Sustainable
Equity
fund, which
holds
LSEG
as
5.8%
of
its
portfolio.
He
points
to the LSEG’s recent partnership
with
Microsoft as
a
decent
play
on
the
rise
of
artificial
intelligence
(AI).

In
2022,
Microsoft
bought
a
4%
stake in
LSEG,
securing
a
board
seat
in
a
10-year
strategic
partnership
with
the
London-based
firm,
with
the
aim
of
building
bespoke
generative
AI
models.  

“One
of
the
opportunities
for
LSEG
with
the
breadth
of
their
data
set
now
and
the
depth
of
it, is to
utilise
AI
to
give
great
tools
to
customers
to
really
get
more
out
of
the
datasets,” he
says. 

“And
if
you
link
that
to
the
recently
announced
partnership
with
Microsoft,
one
of
the
best
developers
of
software, you have got
a credible proposition
that
will
allow
LSE
and
Refinitiv
to
become
one
of
the
leading
players
in
this
space”.

But
Evans
cites
image
as
a
problem
too.
Indeed,
he
agrees
the
Group
has
battled
with
companies’
reluctance
to
go
public
in
London.
In
a
2023
survey
of
small-
to
mid-cap
companies,
for
instance,
the
Quoted
Companies
Alliance found
one
in
four
companies
saw
no
advantage
to being
listed
in
London
whatsoever.

This
continued
to
play
out
in
2023,
which
brought
a
growing
list
of
firms
looking
to
take
their
chances
on
Wall
Street
instead
of
the
once-totemic
English
capital,
with
businesses
from
Arm
to
YouGov
taking
or
considering
the
leap
across
the
pond.

But
Evans
is
unphased
by
this,
and
backs
LSEG

because
he
feels
it’s
able
to
sell
the
benefits
of
a
London
float
to
potential
listers.

“There
is
a
real
importance
of
highlighting
some
of
the
benefits that
London
can
provide.
Access
to
capital
is
important, our
governance
standards
are
higher
although there are questions
about
how
those
should be implemented,”
he
says.

“But
it
is
a
real
benefit
to
investors
to
have
companies
listed
in
London
and
that
can
be really
beneficial
for
the
whole
ecosystem
of
corporate
PLCs
to
be
able
to
access
that through
the
LSE”.

He
adds
UK
data
businesses
like
RELX
(REL)
and
Experian
(EXPN) – themselves
listed
in
London – are
global
businesses
that
have
not
been
held
back.
And
the
LSE’s
capital
markets
division
will remain
profitable
even
if
it
is
a
smaller
contributor
to
the
wider
Group’s
revenues.

Key
Morningstar
Metrics
for
LSEG
Stock:

•
Fair
Value
Estimate:
£90.08
•
Morningstar
Rating: ★★★
•
Morningstar
Economic
Moat
Rating:
Wide
•
Morningstar
Uncertainty
Rating:
Medium

Want
to
know
more?
Read
more
about
our

Fair
Value
Estimates,

Morningstar
Ratings,
the

Morningstar
Economic
Moat
Rating,
and
the

Morningstar
Uncertainty
Rating

What
Obstacles
Does
LSEG
Face?

Niklas
Kammer,
Morningstar
equity
analyst,
says
LSEG
could
face
several
obstacles.  

“Wide
margins
and
opaque
pricing
practices
by
index
providers
could
intensify
oversight
in
the
future,”
he
says.

“Turning
the
Refinitiv
acquisition
into
a
success
could
prove
much
harder
than
anticipated
[so
it]
could
end
up
being
the
tail
that
wags
the
dog,
as
LSEG
is
now
much
more
reliant
on
data
and
distribution
than
exchange-driven
revenue
compared
with
peers”.

Despite
this,
Artemis
Income
fund
manager
Nick
Shenton,
for
whom
LSEG
is
4.3%
of
his
overall
portfolio,
is
still
happy.
As
capital
flows
away
from
London,
he
can
see
the
challenge,
but
still
considers
the
business
one
ripe
with
opportunity. 

“What
we
are
saying
is
that
there
is
an
opportunity
for
shareholders
in
the
LSEG
because
the perception does
not
match
the
reality.
The
reality
is
that
it
is overwhelmingly
the
beneficiary
of
technology
itself,”
he
says.

“We
are
constantly
looking
globally
to
learn
about
business
and
that
is
very
much
the
way
LSEG
is
being
piloted. It
truly
is
a
very
global
strong
technology
business
hiding
in
plain
sight”.

Bulls
Say

LSEG
is
a
fully-integrated
financial
exchange
with
core
assets
along
the
financial
markets
value chain.

Bears
Say

Wide
margins
and
opaque
pricing
practices
by
index
providers
could
intensify
regulatory
oversight
in future.

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