London Stock Exchange Group (LSE: LSEG) shares have taken a hit this morning (3 August) on the back of the company’s H1 results. As I write, the FTSE 100 stock is down about 3%.
Now, this is a company I’ve been building a position in. And after today’s pullback, I plan to buy more shares. Here’s why.
Solid H1 results
Today’s results certainly aren’t perfect. For the half-year (ended 30 June), adjusted earnings per share were down 3.9% year on year due to non-cash FX items and a higher effective tax rate.
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But there are a lot of positives in the report, to my mind.
For example, total income for the period was up 7.9% with broad-based growth across the group (Data & Analytics +7.6%, Capital Markets +1.5%, Post Trade +19.2%).
And the group raised its interim dividend by 12.6% to 35.7p (while also returning £400m in buybacks in H1).
Meanwhile, the company said it had made a “strong start” to the Microsoft partnership and customers will begin to see the benefits next year.
It also noted that it is harnessing the power of artificial intelligence (AI) technologies across the business.
“Both LSEG and our customers are well positioned to benefit from the rapid developments in AI technologies which will enhance the value of our data, improve customer workflow and drive ongoing efficiencies in our own business”, management said in the H1 report.
Looking ahead, the company also said that it now expects full-year constant currency growth in total income to be towards the “upper end” of its 6-8% guidance range.
It added it expects to buy back up to £750m worth of shares before April 2024.
Overall, the results suggest that the growth story here is still very much intact (and possibly just getting started).
Growth at a reasonable price
With the stock back at the 8,000p level, I see value on offer here. Looking out to next year, the consensus earnings per share forecast is currently 378p.
So at the current share price, the forward-looking price-to-earnings (P/E) ratio is about 21.
That strikes me as low given that:
- London Stock Exchange Group has dominant positions in a number of markets
- Revenues are growing at a very healthy rate
- It operates in the data and analytics space
- 72% of revenues are now recurring in nature (up from 43% in 2020)
- It has partnered with Microsoft to develop innovative FinTech solutions
- It’s buying back a lot of stock
I’ll be buying more shares soon
Now, one risk here is the fact that an investor consortium, which includes Blackstone and Thomson Reuters, is selling stock to reduce the size of its stake in the company. This could limit share price gains in the near term.
Looking to the long term however, I see a lot of potential in this stock.
That’s why I plan to buy more London Stock Exchange shares for my portfolio in the near future.
