LSEG is adapting to the new face of London finance

Once the global center of high finance, London is now dealing with a complete downgrade, which has accelerated further with Brexit and the dominance of index funds.

For the London Stock Exchange, this year is already shaping up to be the poorest in terms of new listings in 28 years, with only seven new companies listed on the market. This sluggishness seems like another nail in the coffin after 2024, which saw a veritable exodus of UK-listed companies to the US.

The poor liquidity now offered by the London market no longer convinces issuers; the British case here is not so different from the situation on the Old Continent, where the various markets, too small to accommodate large index flows, are struggling to survive in near autarky. The decline in volumes is therefore irreversible, and the negative spiral self-fulfilling.

LSEG is also facing a potential slowdown in growth for its desktop solution, Workspace, formerly Eikon. This slowdown in the front-end part of the data division – roughly half of consolidated revenue – overshadows the excellent recurring revenue from an oligopoly with Bloomberg, S&P Global, and FactSet.

Next, in order of importance, is the capital markets segment, which has been struggling for several years, as discussed above, but has fortunately been saved by the strong performance of its forex activities, where LSEG remains the global leader. the strategic and systemic clearing segment; the indices segment, with FTSE Russell in an oligopoly with S&P and MSCI, covering over $20 trillion in assets under management; and the risk management segment, where LSEG competes with RELX, Dow Jones, and Moody's.

To cope with the inexorable decline in volumes, which began some time ago, the British group's central strategic ambition has been to reposition itself as a global leader in financial data. This culminated in 2021 with the acquisition of Refinitiv, which was not without its challenges. Across all segments, two-thirds of consolidated revenue now comes from this repositioning.

It should be said that this pivot has been a resounding success. Over the last ten fiscal years, i.e., between 2015 and 2024, revenue has increased sixfold and cash profit—or free cash flow—sevenfold. From a traditional stock exchange operator, LSEG has thus become a true benchmark in data and technology.

This track record has not prevented its market capitalization from collapsing recently, with the stock returning to the level it was at five years ago and valuation multiples approaching their historic lows. This harsh treatment by investors is largely due to the significant dilution caused by the acquisition of Refinitiv, which was financed through the issuance of new shares.

As a result, EPS stagnated between 2017 and 2024, as the number of shares outstanding increased by half over this period. That said, now that the transformation phase is complete, or at least largely complete, LSEG should be able to focus on returning capital to shareholders; MarketScreener analysts would not be surprised to see the group accelerate its share buybacks in the very near future.

LSEG, which generates around £2.5bn in free cash flow, has very limited debt and a market capitalization of £42.5bn—a multiple of around 17x expected cash profit for fiscal year 2025.