LSE earnings strong ahead of merger and ‘Brexit’

The London Stock Exchange announced its Q1 (YoY) performance, showing growth in every business division on both organic and constant currency basis, with total income from continuing operations up 9% to £387.6 million. The sale of Russell Investment Management will be completed in Q2 2016 for US$1,150 million in gross proceeds, but represents a loss of a ‘limb’ in operations that accounted for £249 million (Q1 2015) and £226.2 million (Q1 2016) in quarterly income.

Multi-asset class clearing house LCH continues to raise its game in performance, up by 14% (12% at constant currency) in Q1 2016, with OTC SwapClear client trades accounting for 22% revenue growth. Capital Markets revenues were up by 8% (% at constant currency), with every area raising its stake. Information services, the most important chunk in the company’s earnings, grew by 10% in revenue (% on organic and constant currency basis), from £128.5 million to £141.5 million as FTSE Russell continues to grow.

Besides of the discontinued service Russell Investment Management, Technology Services revenues were the only service with lower revenue in the report, down by 18%, due to the timing of customer deliveries, according to the LSE group.

The polemic ‘merger of equals’ with Deutsche Börse is considered in the report as a “a compelling value enhancing opportunity through the creation of a leading global markets infrastructure group anchored in Europe”. Shareholder documents are being prepared as well as preparatory work on approvals needed for the transaction. “The Board believes the combination would create a leading global markets infrastructure group anchored in Europe and represents a compelling opportunity for both businesses to accelerate their successful and complementary growth strategies”, said the statement.

CEO Xavier Rolet said: “We recently announced our proposed merger with Deutsche Börse.  This presents a compelling opportunity to expand our business in an industry-defining combination, creating a global markets infrastructure group.  With substantial cost synergies and multiple opportunities to extend our product offerings, we believe this transaction offers significant value and benefits to customers and shareholders”.

Intercontinental Exchange is officially interested in offering a counterproposal and it has been reported that Euronext is positioning itself to help an alternative deal or no deal at all as it seems to be trying to block the merger, by bringing the case to European regulators in Brussels and argue about the risks of an exchange monopoly should the LSE merge with Deutsche Börse, summing its market value to $30 billion against Euronext, the second in line with $2.9 billion in market value.

 LCH clear houses SwapClear, ForexClear and EnClear continue to expand in Singapore, and SwapClear in Japan (for non-yen interest rate derivatives). Portfolio margining service LCH Spider is expected to launch in Q2, awaiting regulatory approval, and CurveGlobal in Q3. SETS intra-day auction was launched in March 2016, with good initial volumes.

“The Group has started the year well and delivered a strong Q1 financial performance. We achieved underlying growth in each of our core business areas, with particularly strong performances in LCH’s OTC clearing, at FTSE Russell and good results across Capital Markets.  We also continued to make good progress integrating recent acquisitions, developing innovative new products and expanding services and partnerships in line with our successful open access strategy.”, Rolet added.