Stock analyst argues LSEG's market overreaction negatively affected its valuation
London Stock Exchange Group Faces Challenges Amidst Potential IPO Boom
The London Stock Exchange Group (LSEG) has been facing a significant setback, with a £8bn drop in market valuation in the third quarter. Despite this, there's a potential flurry of Initial Public Offerings (IPOs) in Autumn, which could boost the embattled stock market.
However, recent data indicates that IPO activity on the London Stock Exchange (LSE) remains cautious and subdued due to economic uncertainty. No specific LSE IPOs forecasted for Autumn 2022 are identified in the current search results.
One notable company preparing an IPO, though on the New York Stock Exchange rather than London, is Klarna, a buy now, pay later fintech firm. This could indirectly affect London’s financial ecosystem given Klarna’s founder’s involvement in UK operations but is not a direct LSE IPO.
Meanwhile, LSEG's stock currently trades at 9,282.00p. Despite the market downturn, the group upgraded its earnings forecast and upped its dividend last month. Ben Bathurst, an analyst, has slapped an 'Outperform' rating on the group's stock and hiked the group's target price 43% to 13,200 with a potential upside of 14,800. RBC forecasts a revenue of £9bn for LSEG in the coming year, with expected growth to £9.5bn in 2026 and £10.2bn in 2027.
The potential IPOs may not fully resolve LSEG's issues, given its shift in focus away from share listings and trading fees. Share listings and trading fees now account for only 3% of earnings for LSEG. LSEG has evolved to become a huge data and analytics firm through a series of acquisitions and strategic shifts.
Concerns have spiked over LSEG's Workflows business, which provides software and desktop solutions for financial professionals. The threat of AI has hurt LSEG's software solutions, with the new tech potentially rivaling its analytics service. Workflows has experienced slowing growth in its annual subscription value.
Charles Hall, head of research at Peel Hunt, believes a few successful IPOs could change the momentum and pull the levers for growth. He suggests that 2024 could be a strong year for LSEG, with an organic constant currency growth of 8%. However, the share price reaction has been outsized, with shares in LSEG having lost over 20% in the last six months.
In conclusion, while the London Stock Exchange Group faces challenges, the potential IPO boom could provide a much-needed boost. However, the success of these IPOs may not fully address the group's issues, particularly those related to its Workflows business and the competitive pricing environment.
Investing in the London Stock Exchange Group (LSEG) could present an opportunity, as analyst Ben Bathurst has given an 'Outperform' rating and increased the group's target price, despite the ongoing market challenges. However, the success of potential IPOs may not completely resolve LSEG's issues, as the group has diversified into data and analytics, reducing its reliance on share listings and trading fees.
