London Stock Exchange: What We Think of the Stock After Earnings

Key Morningstar Metrics for London Stock Exchange Group

• Fair Value Estimate
  : GBX 11,900
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : High

What We Thought of London Stock Exchange Group’s Earnings

London Stock Exchange Group LSEG reported a good first half, as volatility and uncertainty drove strong performance across the markets business. The data and analytics business showed improving growth dynamics, but management damped expectations for AI-related revenue impacts in the short term.

Why it matters: We believe LSEG will be a beneficiary of large language models used in financial markets, increasing data demand for real-time and difficult-to-replicate datasets. This could offset the trend of declining terminal seats, which has been a headwind for the industry for over a decade.

• The market business stood out with 12% organic growth, followed by risk intelligence (up 10%) and FTSE Russell (up 9%). Data and analytics grew 5.1%, with data and feeds (up 7.5%) performing well. LSEG is not attributing the data and feeds growth to artificial intelligence demand yet, however.
• LSEG showed further growth in its client base signed up to its AI model context protocol connector. Management was nevertheless pumping the brakes on expectations of near-term revenue contributions from AI demand, citing the slow pace at which financial institutions move to integrate these systems into their processes.

The bottom line: We maintain our GBX 11,900 fair value estimate and Wide Morningstar Economic Moat Rating. Shares appear undervalued.

• First-half results did not provide the insights into MCP economics we had been hoping for, but the commercial frameworks that have been laid out show that LSEG is building these agreements to drive incremental revenue. The timing and materiality of this revenue were left opaque, however.
• The closing of the valuation gap to our fair value estimate may take longer than we had anticipated. We think the market is looking for tangible signs in the form of revenue acceleration as a result of AI data demand. That said, we see opportunities that outweigh risks at these price levels.