The group continues to prioritise growth over rising costs, causing the shares to drop in early trading.
Increased revenue and profits for London Stock Exchange (LSE)
- Total income growth surpasses expectations, reaching £2.1bn but adjusted operating profit falls below expectations
- Increasing levels of diversification welcomed by investors in an increasingly uncertain political and economic environment
- We maintain our ‘hold’ recommendation for investors willing to accept a medium level of risk
The results issued this morning are undoubtedly a mixed bag. The total income growth of 9% to £2.1bn, slightly beating expectations, is to be commended, as should the adjusted operating profit growth of 12% to £931m. However, this fell slightly short of analyst expectations. Looking into the accounts, we have seen a number of costs rising, and with management suggesting cost and margin targets are not a priority with focus remaining on growth, the markets have reacted in a downbeat fashion with the shares trading lower by roughly 2% in early trading.
Acquisitions expected to aid further revenue growth
However, today’s revenue growth has been partly achieved by previous acquisitions with FTSE Russell Services benefitting from the trend toward passive investment and driving the group’s Information Services revenues higher by 14%. Its majority ownership of LCH also provided strong revenue growth. On the back of these successes it believes the 4.9% stake in Euroclear will provide opportunities as well as a seat on the board of the clearing house.
The group in recent years has become more diversified and should be welcomed in an increasingly uncertain political and economic environment. The shares are for investors seeking capital growth as dividends yields are very modest.
Our View on London Stock Exchange - Hold
Compared to some of its peers, the shares can be considered as a little overvalued and we therefore continue with our ‘Hold’ recommendation for investors willing to accept a medium level of risk.
If you're looking to invest in the General Finance sector and you're not currently a customer of The Share Centre, sign up today. You can also view the full range of General Finance companies and their share prices.