London Stock Exchange Group is set to release its fourth-quarter 2025 earnings report on Feb. 26. Here’s Morningstar’s take on what to look for in LSEG’s earnings and the outlook for its stock.
Key Morningstar Metrics for London Stock Exchange Group
- Fair Value Estimate: GBX 11,200
- Morningstar Rating: ★★★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
What to Watch for in LSEG’s Q4 Earnings
- For LSEG’s fourth quarter release, we will be looking specifically at annual subscription value growth, 2026 guidance, and potential first impacts of Elliott Investments’s stake on unlocking value.
- Annual subscription value growth and 2026 guidance will be scrutinized for any signs of improving or deteriorating fortunes for LSEG’s AI strategy. Any miss on this front could spell further share price weakness as it plays into the AI-disruption narrative circling LSEG and other financial data stocks at the moment.
- The flip side of the coin is that a strong outlook may alleviate some of the recent share price pressure. We will also be looking at potential discussions around ways to unlock value for LSEG. Questions will be raised whether Elliott’s stake has already resulted in tangible ideas how to support LSEG’s share price.
- LSEG has been increasing its share buyback program over the last quarters. Given the company’s confidence in its AI strategy and its depressed share price currently, another larger buyback announcement could a feasible route for the exchange group, in our view.
Fair Value Estimate for LSEG
Our fair value estimate is GBX 11,200.
We assume a 5% revenue compound annual growth rate in our explicit forecast period, driven primarily by LSEG’s data and analytics business and the FTSE Russell business. We anticipate an average annual revenue growth rate of 5% from the data and feeds business, which is supported by the ongoing shift from active to passive management.
Economic Moat Rating
We believe London Stock Exchange Group has a wide moat.
The group controls key global assets ranging from equity, fixed-income, and foreign-exchange trading over the collection, management and distribution of trading-related data sets and indexes down to post-trade clearing and reporting services.
While we believe the majority of LSEG’s assets are moaty on a stand-alone basis, we reason the group’s competitive advantages are bigger than the sum of its parts. LSEG offers a comprehensive ecosystem, which allows it to capture and retain clients via multiple touchpoints across the value chain.
Financial Strength
We assign LSEG an Exemplary Capital Allocation Rating.
The rating reflects our view of its sound balance sheet, exceptional investments, and appropriate shareholder distributions.
On a forward-looking basis, we view LSEG’s balance sheet as sound. LSEG has a strong record when it comes to acquisitions and investments, spotting trends early and creating shareholder value as a result of it. Over the next couple of years, we expect a more muted approach to mergers and acquisitions, which does not rule out smaller acquisitions in alternative data sets and harder-to-value financial instruments segment. LSEG’s dividend policy of paying out 33%-40% of adjusted earnings is prudent. It is also committed to distribute excess capital to shareholders via share buybacks.
Risk and Uncertainty
We assign LSEG a Medium Uncertainty Rating.
Exchange groups are subject to myriad risks, including operational, regulatory, technological, legal, and financial. Although LSEG’s business mix offers a diversification effect through different exposures to market volatility and macroeconomic backdrops, the group is not immune from a prolonged market downturn, resulting in lower volume traded, less clearing, and lower demand for index products.
This is amplified by LSEG’s largely fixed cost base, creating a negative operating leverage effect in a gray-sky scenario. Also, as financial market infrastructure providers, exchanges are subject to substantial regulatory scrutiny and a continuously evolving regulatory framework.
LSEG Bulls Say
- LSEG is a fully integrated financial exchange with core assets along the financial markets value chain.
- LSEG has a strong position in the index and analytics segment and creates opportunities for further value creation in the OTC and ESG segment.
- The partnership with Microsoft allows for the creation of new products and distribution channels.
LSEG Bears Say
- Wide margins and opaque pricing practices by index providers could intensify regulatory oversight.
- The ultimate impact of products developed with Microsoft may prove less meaningful than anticipated if clients do not adopt them adequately into their workflows.
- Meaningful growth in the workflows segment may prove challenging, given strong competition.
