London Stock Exchange Group (LSEG) is a multinational financial data and financial infrastructure business. Its stable of assets help customers through the trading lifecycle: from providing the information used to develop an investment idea to operating both the trading venues where these ideas are actioned and the clearinghouses that remove counterparty risk from these actioned trades.
What makes LSEG a quality business?
- Healthy secular market growth dynamics
LSEG services a fast-growing market. The availability of market and securities data has grown significantly as the global financial ecosystem has digitised. LSEG’s curated datasets and adjoining analytical tools are critical inputs to the systems and workflows of financial market participants. The ever-growing nature of these datasets and increasing demands to make sense and use of them, provide a healthy backdrop to LSEG’s activities. - Strong market positions underpinned by network effects, operational excellence, differentiated datasets and strong brands
LSEG boasts strong market positions across its portfolio. The company’s exchanges and the clearing operations benefit from a two-sided network effect that continually enhances the market leadership of the longstanding LSEG-owned incumbents. In trading, the network effect drives lower trading costs, while in clearing it drives significant capital efficiencies, with LSEG delivering customers over $950 trillion worth of capital efficiency savings every year.1 In addition, throughout the global financial crisis and pandemic volatility, LSEG’s exchanges, clearinghouses operated seamlessly, underpinning their reliability credentials in the minds of their customers. Turning to LSEG’s data businesses, the company boasts unique datasets and strong brands like the FTSE Russell indices and Workspace. - Defensive revenue stream
Roughly 75% of LSEG’s revenues are recurring, ensuring resilience through various market conditions. This is predominantly down to the data and analytics businesses being subscription-led, while the remaining 25% captures the transactional components of the exchanges and the clearing houses. The transactional revenues of these trading and clearing venues are more resilient than one might expect thanks to a strong secular adoption runway, particularly for Tradeweb, and the countercyclical nature of clearing demand.
Incumbents are difficult to usurp
Few sectors have seen as much technological change as the financial industry. For LSEG to maintain market leadership throughout this change is impressive. It is a telling example of how incumbents, particularly within mission critical services, are difficult to usurp. This gives us confidence that LSEG’s market leadership will persist and that the business will continue to take share of customer wallet and in so doing compound value for shareholders.
1 Source: LSEG data
