Barclays marks up target for LSE, buys into management's target for margins

Analyst consensus for the London Stock Exchange was too cautious, Barclays said.

In a research note sent to clients, analysts Daniel Garrod, Toni Dang and Shamoli Ravishanker said the exchange operator's fiscal year 2019 forecast for operating margins of 55% on an EBITDA basis looked achievable.

Market estimates on the other hand were for a margin of just 52%, they pointed out, while the LSE's transatlantic Exchange peers were already sporting margins in the mid-50's, when not higher.

To be more precise, if the LSE managed to hit its target, that could trigger an approximately 11% upwards revision in consensus estimates for the group, they projected.

Combined with their estimates for LSE's earnings per share to rise at a compound annual rate of 18% over the 2017 to 2020 period - a reflection of its "attractive" divisional mix - the analysts opted to reiterate their 'overweight' stance on the shares.

They also bumped up their target price from 4,365p to 4,635p.

The main drivers of earnings at its clearing business, LCH, and at the FTSE Russell index unit were also still "highly favourable", they said.

To back up that assertion, they pointed at the "attractive" growth seen in LCH's volume drivers over the first two months of 2018 and 33% headline growth at FTSE Russell in fiscal year 2017 (15% at constant exchange rates).

LSE was also investing in new growth initiatives, they noted.