Berenberg reiterates 'buy' rating on the LSE

The German broker believes the LSE will benefit greatly from increased levels of clearing derivatives and a greater use of quantitative investment techniques and expects those exposure will help the exchange deliver "a rapidly growing, but fairly stable, earnings stream" over the next three years.

"Investors should not be put off by the superficial complexity of LSE," said Berenberg in a Monday morning research note entitled, The 10-step guide to buying LSE.

"The group’s business model is straightforward and we believe the answers to just 10 questions can make investors comfortable with buying LSE."

Berenberg, which trimmed its target price on the LSE from 5,380p to 5,260p, noted that the marginal cost of clearing a trade or selling an additional index licence on the exchange was "close to zero", making operational leverage an intrinsic feature of the outfit's business model.

"We expect LSE to grow earnings by 16% next year; the average for global exchanges is only 8%, yet LSE continues to be valued in line with the sector average on c18.2x P/E (2020)."

"We find this hard to reconcile with LSE’s exposure to secular growth trends and superior earnings visibility. We believe LSE offers attractive growth at a reasonable price."

Berenberg also noted that it felt risks from Brexit and euro-clearing had been "overstated".