Friday preview: LSE reports full year results with merger talks in focus

The London Stock Exchange’s (LSE) full year results on Thursday will be closely scrutinised by analysts who will be particularly interested in any further information on its merger talks.

The Intercontinental Exchange Inc confirmed on Tuesday that it was considering making a bid for LSE to rival Deutsche Boerse’s.

ICE, which owns the New York Stock Exchange, said no approach has been made yet and the LSE said there can be no certainty that it would.

The LSE said discussions with Deutsche Boerse regarding a potential merger of equals continue to progress and that it would update the market as appropriate. Under the proposed deal, Deutsche Boerse would buy a 54.4% stake, leaving LSE with 45.6%.

It is the third time the LSE and Deutsche Boerse have tried to strike a deal. The first attempt as in 2000 followed by another in 2004-05.

“Whilst we see the obvious benefits from a merger with Deutsche Boerse (namely cost and revenue synergies), we remain mindful of the challenges that would need to be overcome for it to complete (competition authorities, different business structures, national pride),” said Numis analyst Jonathan Goslin.

“We continue to favour LSE strong market position, favourable growth drivers and diversified revenue base, but until we gain further details on how a deal could be structure, we maintain our Hold recommendation due to concerns the deal may yet fall through.”

Numis expects the LSE to report a 5% increase in adjusted diluted earnings per share to 107.1p, reflecting positive revenue growth and margin improvement.

The broker estimates adjusted revenues increased 10% to £1.43bn as the consolidation of Russell Indexes was offset by lower revenues from post-trade services hurt by the loss of commodity contracts, foreign exchange headwinds and lower net treasury income.

In October, the LSE decided to sell Russell Investments a year after it purchased the index compiler and asset manager for £2.7bn. LSE agreed to sell Russell Investments for $1.15bn in cash to US private equity group TA Associates, adding that it will receive net proceeds of $920m from the sale after tax and expenses.

Numis expects LSE’s operating margin increased from 42.1% to 43.3%, reflecting Russell Indexes higher margins of 53% and the group’s ongoing cost reduction initiatives.

Friday 04 March

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