Numis leaves LSE at 'hold' ahead of Deutsche Boerse merger

Numis has reiterated a ‘hold’ rating at target price of 2,700p on the London Stock Exchange Group (LSE) ahead of its merger with Deutsche Boerse.

The £21bn merger between the LSE and Germany’s stock exchange was announced in mid-March and aims to generate cost synergies of €450m (£354m) and revenue synergies of at least €250m (£197m).

“We believe a merger with Deutsche Boerse could create significant value for LSE shareholders if completed as expected,” Numis said.

“But whilst we see the obvious benefits from such a merger (namely cost and revenue synergies), we remain mindful of the challenges that would need to be overcome for it to complete (competition authorities, regulatory concerns, national pride) and the long list of failed merger and acquisition deals within this sector.”

The UK and German governments have said they would block the deal if it was seen to hurt their domestic economies.

Numis said while a deal would be difficult to tie up, it estimated LSE could be worth up to 3,200p per share if the merger completes as expected and the targeted cost synergies are achieved.

“However, we still maintain our ‘hold’ recommendation and 2,700p/share target price as we remain mindful of the numerous challenges that need to be overcome for such a deal to complete.”

The broker added that it continues to favour LSE’s “strong market position, favourable growth drivers and diversified revenue base” but the shares have had a “very strong run and are up with events in our view, especially given the downside risks should a deal not eventually be completed”.

LSE shares rose 0.83% to 2,677p at 1023 BST.