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The London Stock Exchange Group (LSE: LSEG) share price dipped 4% this morning after the company published its first-half results. This exciting FTSE 100 growth stock appears to have hit a lull, climbing just 6% in the past 12 months and 20% over five years. For a business that’s delivered so spectacularly over the last decade, it’s a little underwhelming.
Its recent stellar past may explain the reaction to today’s numbers. The financial data company is priced for growth. When that happens, even a decent set of results can fall short ofexpectations.
Profits and dividends up
Performance was anything but disappointing. Total income excluding recoveries rose 7.8% on an organic constant currency basis, with all divisions delivering growth. Risk Intelligence was the standout, up 12.2%, followed by Markets, which climbed 10.7%.
Adjusted earnings per share rose 20.1% to 208.9p, and reported EPS rose almost 90%. Adjusted EBITDA rose 9% to £2.22bn, lifting the margin by 100 basis points to 49.5%. Management rewarded shareholders with a 14.6% hike in the interim dividend, to 47p, and a further £1bn share buyback planned for the second half, after £500m in the first.
Chief executive David Schwimmer said the group is benefiting from “strong and consistent growth”, helped by subscription revenues and increased market volatility. He also pointed to structural growth drivers, including rising global demand for data, AI, and the digitisation of markets.
I’m encouraged to see continued investment in new products, with 250 platform enhancements and progress on its Microsoft partnership all highlighted.
Valuation still high
I last wrote about this company on 13 June in an article titled: “This red-hot growth share has hiked dividends by 19.5% every year for a decade.” I was genuinely excited by its long-term track record, pointing out that its share price had jumped 365% over 10 years while dividends increased at an average of 19.45% a year.
However, I felt the price was too high, with a P/E ratio above 30 (albeit down from a mighty 63 one earlier). Today’s share price dip has nudged that down to 27.7, making it a bit more tempting.
The dividend yield still looks modest at 1.35%, but as today’s results showed again, management has a progressive mindset. For long-term income and growth, this remains a high-quality business.
Strong opportunity
Despite today’s wobble, I still think this stock is worth considering. It has the hallmarks of a modern compounder, although with a market cap of £51bn, I guess it’s not going to turn into a multi-bagger now.
I said in June I wanted to buy on a dip. I’m tempted, but might hold my horses. The stock market is running a little hot at the moment, and London Stock Exchange Group is still a little pricey.
The 17 analysts covering the stock have set up median price target of 12,850p. That would mark a rise of more than 30% of it happens.
Eighteen out of 22 analysts call London Stock Exchange Group a Strong Buy, two more say Buy and two say Hold. None of them suggests selling. That’s a strong endorsement.
I still think this business is well worth considering with a long-term view. I’ll let the dust settle on today’s results, then swoop.
