London Stock Exchange Group Plc shares had their worst fall of the year after the firm reported slowing growth in subscription revenue, even as it said income will rise at the high end of its guidance during 2023.
The bourse reported adjusted operating profit of £1.4 billion ($1.8 billion) for the first half of the year, compared with a consensus estimate of £1.5 billion compiled by Bloomberg. The results were broadly flat compared to a year ago.
The value of subscriptions rose 6.9% over the first six months of the year, slowing from 7.6% in the first quarter. Data and analytics, which is now the group’s main revenue source, grew 7.6% from the same period a year ago, while post-trade was up 19.2% and capital markets income increased 1.5% during a tough spell for initial public offerings.
“Data and analytics is growing faster than it has for many years,” Chief Executive Officer David Schwimmer said in a statement. “Post trade once again demonstrated the critical role it plays in helping customers manage risk in uncertain markets, delivering outstanding growth.”
Shares fell as much as 6.1% in early trading, the worst decline since December, and were down 1.88% at the time of publication.
The main driver for the drop in shares was the fall in annual subscription value, said Redburn analyst Russell Quelch. “If you wanted to be cautious on that, the assumption will be that sales cycles are lengthening and churn is increasing,” he said. “My read is simply that some revenue will be booked in the second half. I am hopeful that the growth of business is unchanged.”
The group expects full-year total income, excluding recoveries and the effects of currency movements, to grow at the upper end of its range of 6% to 8%.
Schwimmer told Bloomberg TV that he’s still confident about the LSE’s clearing house doing business within the European Union. “We are well past the point” of LCH Ltd. losing access, he said, even with a temporary post-Brexit waiver set to expire in 2025.
“The various stakeholders in the EU recognize how important LCH is to their institutions, to their banks,” he said.
The group is continuing to review its options in terms of leaving its London office near St Paul’s, and will remain in the City if it does relocate, Schwimmer said.
LSE now makes most of its money from data services, having completed the $27 billion purchase of Refinitiv in 2021. It also signed a tie-up with Microsoft Corp. last year to bolster its capabilities in cloud computing. The parent company of Bloomberg News competes with Refinitiv to provide financial news, data and information.
(Adds comment from Redburn analyst in sixth paragraph.)
