Morgan Stanley Names LSEG as Top Pick Amid 'Overreaction' to Interim Results

Morgan Stanley has named London Stock Exchange Group (LSEG) as its top pick, citing an "overreaction" to the company's interim results. The investment firm believes LSEG's strong performance and growing market share in the exchange and trading business justify a positive outlook.

London Stock Exchange Group (LSEG) has been named a top pick by Morgan Stanley, with the investment firm arguing that the market's reaction to the company's first-half (1H25) results was excessive. The analyst at Morgan Stanley, Bruce Hamilton, wrote in a note that the recent market response to LSEG's 1H25 results was overdone [1].

Morgan Stanley has raised its earnings per share (EPS) estimates for 2025 to 2027 by around 3%, citing foreign exchange gains and the impact of a £1 billion share buyback. The bank maintains a positive outlook on LSEG's revenue growth, projecting it to grow at a compound annual rate above 7% through 2027, with EBITDA and EPS growth projected at 9% and 11%, respectively [1].

Despite a deceleration in LSEG’s Annual Subscription Value (ASV) growth to 5.8% in the second quarter, down from 6.4% in Q1, Morgan Stanley noted that this slowdown may be overstated as ASV doesn't fully capture usage-based and asset-based revenues, which are becoming more important for the group [1]. The bank also expressed confidence in the company's sales pipeline and pricing outlook, with management expecting to take at least as much price in 2026 as 2025, or 3%+.

Additionally, Morgan Stanley sees the rise of generative AI as a net opportunity rather than a threat, arguing that LSEG's strong position in meeting AI-related data demand is bolstered by its trusted and accurate data sources [1]. The bank also highlighted LSEG's valuation, which trades at 22.5x 2026 earnings, or around 18.5x on a cash-adjusted basis, compared to U.S. peers averaging 31x and FactSet at 21.5x [1].

The bank lowered its price target slightly to 12,200p, but still sees about 25% upside, calling the current valuation "extremely undemanding" [1]. This upgrade comes as LSEG announced a £1 billion share buyback program, aiming to reduce its share capital [3].

References:
[1] https://www.investing.com/news/earnings/mstanley-lifts-lseg-to-top-pick-says-reaction-to-h1-results-is-overdone-4173202
[3] https://fxnewsgroup.com/forex-news/exchanges/london-stock-exchange-group-launches-1bn-share-buyback-program/