4th Mar 2022 15:00
(Alliance News) - The annual results delivered by London Stock Exchange Group PLC on Thursday and the reassuring guidance provided has calmed investor "nervousness" about the spending that will be required to make its Refinitiv acquisition pay off, analyst at Jefferies said on Friday.
The US investment bank said it is leaving its earnings forecasts for LSEG mostly unchanged, but those estimates now look even more solid.
"Confidence in the outlook will be significantly enhanced given low expectations ahead of earnings," Jefferies said in a note. "We expect continued delivery to support a re-rating and retain our 'buy' rating."
Jefferies has a GBP85 price target on LSEG shares. The stock was trading up 4.1% at 7,270.00 pence on Friday afternoon, bucking a declining overall market, with the FTSE 100 index down 2.7%. LSEG shares already had added 8.5% on Thursday. The stock remains down 23% over the past 12 months, though.
LSEG on Thursday said its Refinitiv deal has been "successful" with the firm's cost savings ahead of target amid burgeoning income which has led to increased shareholder payouts.
"LSEG has delivered a successful first year after completion of the Refinitiv acquisition. We have produced a strong financial performance, have met or are ahead of all targets and have good momentum into 2022," Chief Executive David Schwimmer said.
Pretax profit doubled to GBP987 million in 2021 from GBP492 million in 2020.
Total income surged to GBP6.42 billion from GBP2.03 billion. Data & Analytics income ballooned to GBP4.29 billion from GBP824 million. Capital Markets income was up to GBP1.18 billion from GBP288 million, but Post Trade income was flat at GBP913 million versus GBP915 million in 2020.
Pro forma results - which assumes LSEG's Refinitiv acquisition took place at the start of 2020 - shows total income grew to GBP6.81 billion from GBP6.77 billion. Data & Analytics income was flat at GBP4.61 billion from GBP4.65 billion, while Capital Markets income increased to GBP1.26 billion from GBP1.17 billion, while Post Trade income was flat at GBP913 million versus GBP915 million in 2020.
LSEG said its group 2021 performance gives it confidence it is on track to achieve the 5% to 7% 2020 to 2023 compound annual growth rate target it has set for itself.
LSEG declared a final dividend of 70.0 pence for 2021, giving it a total payout of 95.0p, which is increased by 27% from the 75p total dividend handed out to shareholders in 2020.
LSEG said it is making "good progress on revenue synergies" stemming from its Refinitiv acquisition, expecting to generate run-rate revenue synergies of GBP40 million to GBP60 million by the end of 2022.
Meanwhile, in terms of cost synergies, the company said it is running ahead of schedule on its original plan and also has identified an additional GBP50 million in savings, raising the five-year target to at least GBP400 million per annum.
Given this progress, Jefferies said LSEG is undervalued. Its shares trade at 19 times earnings per share, compare to 21 times for EU and US exchange peers and 25 times for peers in information services - the business that Refinitiv is in. The bank thinks LSEG can re-rate to 23.5 times EPS.
"We see it as uniquely placed to capitalise on structural growth in demand for data, clearing and the electronification of [over-the-counter] markets," Jefferies said.
By Tom Waite; [email protected]
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