The UK blue-chip index continues its march towards an all-time high. A 4% rally since the start of 2023 has the Footsie flirting with its record high of 7,903 points, set back in May 2018. Despite this, one FTSE 100 share in particular still looks good value to me over the long term.
Big data and analytics
The London Stock Exchange Group (LSE: LSEG) owns and operates the London Stock Exchange. It also owns several other stock market-related assets, including Refinitiv, Tradeweb, and FTSE Russell. The Group’s current corporate guise was cemented back in 2007 when it merged with Borsa Italiana (the Milan Stock Exchange).
But eyebrows were raised when the company announced it was acquiring data and trading firm Refinitiv in 2019. It paid a hefty $27bn, its largest acquisition to date.
Group CEO David Schwimmer has noted that he advised on hundreds of transactions in his previous role at Goldman Sachs. But he struggles to think of a single one “as transformational and value-creating” as the company’s acquisition of Refinitiv.
Now the second-largest market data provider after Bloomberg, Refinitiv boasts a customer base of 40,000 financial institutions across 190 countries. The London Stock Exchange Group and Refinitiv combining creates a truly world-class operation in terms of scale and comprehensive data offerings.
Though I think the acquisition is a smart one, that’s not to say the huge price tag doesn’t create risks. One is that the company’s net debt now stands at £5.7bn, which represents a ten-fold rise in just five years.
Last year, tech giant Microsoft announced it had taken a 4% stake worth $2bn in the company. For its part, the Group has committed to spending a minimum of $2.8bn with Microsoft on cloud-related services. This will involve significantly upgrading the company’s infrastructure, including the Refinitiv platform.
Many analysts now anticipate that the planned transformation of the Refinitiv platform may well challenge Bloomberg’s market dominance.
As for the stock, it’s currently much cheaper than it’s been in recent years. It now has a forward price-to-earnings (P/E) ratio of 21. In 2021, the P/E stood at 38.
The share price is down 18% over the last two years. One share now costs a little over £74, compared to £98, reached back in February 2021.
There was a sharp drop in initial public offerings (IPOs) in the UK last year, due to economic uncertainty caused by the war in Ukraine. But Schwimmer has said there’s a “healthy pipeline” of companies waiting for markets to settle down before going public in London.
Put simply, more IPOs represents more chance for the company to make money.
There are some interesting British companies in this pipeline of potential IPOs. These include craft beer chain Brewdog, and Revolut, the fintech startup hoping to secure a UK banking license. Also, semiconductor giant ARM Holdings is rumoured to be re-listing on the London Stock Exchange.
I’m looking forward to kicking the tyres on these potential investments when the opportunity arises. In the meantime, I’ve also got a healthy pipeline of shares I want to invest in. So I’ve put LSEG stock on my watchlist until I have more capital to deploy. But I expect to own shares sooner rather than later.
Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2023