LSE Shares to Benefit from Frank Russell Deal

LSE's success will ride in good part on its ability to capitalise on recent and planned acquisitions – in indexes and clearing – to help fuel growth, say equity analysts

Stephen Ellis 2 April, 2015 | 3:33PM

Descended from 17th century London coffeehouse traders, today’s London Stock Exchange Group (LSE) is a major player among bourse operators. In our view, LSE's success will ride in good part on its ability to capitalize on recent and planned acquisitions – in indexes and clearing – to help fuel growth. We see LSE as poised to remain a competitive force in the continuously evolving exchange industry.

We expect LSE's information-services segment to continue providing the largest slice of overall revenue. Steady growth should be fed by appetite for index-based offerings, which are included in the segment's FTSE operations. In our view, the FTSE business, now fully owned by LSE, has an opportunity to build on the momentum of its selection as a benchmark provider to more than $200 billion of assets at Vanguard. We think the glow from this victory should help position FTSE to compete even more effectively going forward.

Indeed, indexes are going to become an even larger business for LSE, with the acquisition of Frank Russell Co. and its suite of index products. Separately, we also see potential in LCH Clearnet, in which LSE now owns a majority stake. We think this operation has interesting prospects, as clearing grows in importance, but we do have some concerns about recent customer losses and the business has been through a managerial transition.

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Stephen Ellis  Stephen Ellis is a senior stock analyst on the Energy Team.

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