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November 16, 2012 9:50 am
The London Stock Exchange has defied tough markets to issue a strong set of results, highlighting the success of its strategy of seeking new revenues beyond its traditional equity trading business.
Operating profit came in above analysts’ forecast as the group’s capital markets, information technology and post-trade operations all performed well in the six months to September 30.
Xavier Rolet, chief executive, said: “I am pleased with these results in difficult market conditions. We are operating a diversified business and that is paying off.
“If you look at the balance of the products in our portfolio, you can see we are no longer reliant on our UK equities business. To our critics, I say we are operating a diversified business that is well placed to grow.”
Mr Rolet, together with chairman Chris Gibson-Smith, have stepped up efforts to diversify away from equity trading, which 10 years ago was the bulwark of the group’s business, by adapting to technological change and competition among the world’s leading bourses.
Peter Lenardos, head of diversified financials at RBC Capital Markets, said: “These are good results. Adjusted operating profits are £17m above our expectations as a result of stronger profit margins across the range of its businesses.”
Other analysts said the rise in profits was impressive given volatile market conditions, particularly among equities.
However, some warned of tougher times ahead, if regulatory changes curb the London Stock Exchange’s post-trade services business, a key driver of its profit performance.
One senior City analyst said: “The results are good, but the group must beware. Treasury income through its clearing business will suffer as new regulations mean deposits must be placed on a secured basis, which is safer but pays less.”
In the half-year period, group operating profits rose to £217m, up 1 per cent compared with the same period in 2011, comfortably beating market expectations.
Total revenue rose 7 per cent to £349.8m, while total income – which includes income from its counterparty and treasury businesses – reached £423.7m, up 10 per cent and above forecasts. Net debt stood at £663m, also broadly in line forecasts.
The group said it was pressing ahead with its acquisition of LCH.Clearnet, the European clearing house, and stressed it could ride out problems over regulations that will restrict profits from its counterparty business.
The group’s share price closed 0.2 per cent up on Friday, at 932p.
The London Stock Exchange has proved again that a clear and sound strategy can overcome even the most uncertain of conditions. Its diversification away from its equity business has proved critical to its profit growth. Trading on a forward earning multiple of 10.26 times, however, shares in the group look fairly priced for now, especially as regulatory headwinds may make it harder to post strong profits next time round.
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