Market ‘overreaction’ damaged LSEG’s valuation, analyst says
The London Stock Exchange Group (LSEG) has faced a valuation battering after a market “overreaction” to woes in its desktop analytics division, one analyst has said.
LSEG has lost £8bn in market valuation so far in the third quarter, as concerns spiked over its Workflows business, which provides software and desktop solutions for financial professionals.
Workflows has faced slowing growth in its annual subscription value “amid minor evidence of a shift in the competitive pricing environment”.
The threat of AI has also hurt LSEG’s software solutions, with the new tech threatening to rival its analytics service.
Shares in LSEG have taken a beating, losing over 20 per cent in the last six months. The group’s stock now trades at 9,282.00p despite upgrading its earnings forecast and upping its dividend last month.
But an analyst at the Royal Bank of Canada (RBC) said: “Whilst some concerns may be rational, and the outcomes uncertain, we think the share price reaction has been outsized”.
LSEG to ‘Outperform’
Ben Bathurst slapped an ‘Outperform’ rating on the group’s stock, expecting it to “materially outperform sector average over 12 months”.
The analyst hiked the group’s target price 43 per cent to 13,200 with a potential upside of 14,800.
He added the “outsized move” in stock “creates an attractive risk and reward” in LSEG’s valuation.
Bathurst said: “2024 was another strong year for LSEG, delivering organic constant currency growth of eight per cent, exceeding stated targets and a reflection of the improved performance of the group.”
RBC pencilled in a revenue estimate of just over £9bn for the coming year with the figure expected to grow to £9.5bn in 2026 and £10.2bn in 2027.
However LSEG faces an ongoing headache amid a serious drought in listings on the London Stock Exchange.
Just £160m was raised from five listings on the London markets in the first six months of the year, the lowest-first half since 1995.
City grandees told CityAM this week a flurry of IPOs in the Autumn could given the embattled stock market a much-needed boost.
“The IPO jungle drums are starting to beat,” Charles Hall, head of research at Peel Hunt, said.
”A few successful IPOs would change the momentum… the levers are clear, they just need to be pulled.”
Even if that does come to pass, however, LSEG may not be out of the woods. Share listings and trading fees now account for just three per cent of earnings for the group, which, through a string of acquisitions and strategic shifts, has evolved to become a huge data and analytics firm.