LSEG: A Hidden Gem Amid Market Skepticism?

The London Stock Exchange Group (LSEG) has long been a pillar of global financial infrastructure, yet its stock price has lagged behind its earnings power in recent years. With a compound annual growth rate (CAGR) of 26% in adjusted EPS since 2020 versus just 18% in share price appreciation, a glaring discrepancy has emerged between LSEG’s financial performance and investor sentiment. Despite near-term headwinds tied to Credit Suisse’s restructuring and broader market skepticism, the data suggests LSEG is undervalued—and its strategic execution and shareholder-friendly policies position it as a compelling buy.

The EPS-Share Price Divergence: A Buying Opportunity?

Let’s start with the numbers. LSEG’s adjusted EPS has surged from 166.5p in 2020 to 363.5p in 2024, a 26% CAGR, driven by organic growth in its data, analytics, and capital markets divisions. Meanwhile, its share price closed 2024 at 11,920p, up just 18% over the same period—far below the pace of earnings growth. This gap is starkly illustrated when comparing the two metrics:

The disconnect is further highlighted by LSEG’s P/E ratio of 36.8x, which, while elevated, is justified by its 9.1% adjusted EBITDA margin expansion and £2.2 billion equity free cash flow in 2024. The market may be underestimating LSEG’s ability to sustain growth through its strategic initiatives, such as its Microsoft partnership and the roll-out of over 500 enhancements to its Workspace platform.

Q1 2024 Strengths: Tradeweb’s Record and Cloud Momentum

Recent quarters have seen LSEG defy skeptics. In Q1 2024, its Tradeweb division (acquired via Refinitiv) posted record volumes, leveraging its position in electronic trading. Meanwhile, the Microsoft partnership—aimed at cloud-based data solutions—has begun delivering tangible results, with initial products hitting general availability. These moves underscore LSEG’s pivot to recurring revenue streams in data and analytics, which now account for two-thirds of its income.

Shareholder Returns: Buybacks and Dividends Signal Confidence

LSEG’s management has amplified its commitment to shareholders. In 2024 alone, it returned £1 billion via buybacks, with an additional £500 million planned by July 2025. The final 2024 dividend rose 12.2% to 89.0p, aligning with its adjusted EPS growth. This 1.9% dividend yield offers stability in volatile markets, while buybacks directly counterbalance near-term headwinds like reduced demand from Credit Suisse’s restructuring.

Navigating Near-Term Challenges

Credit Suisse’s post-UBS merger restructuring has temporarily dampened activity in certain LSEG divisions, such as its Post Trade Solutions unit. However, these are sector-specific and transient. LSEG’s diversified revenue streams—including its FTSE Russell indices, Risk Intelligence, and Capital Markets—provide a cushion against single-point risks.

Why LSEG is a Buy Now

• Valuation Discount: At 36.8x P/E, LSEG trades at a 22% discount to its 5-year average P/E of 47.3x, despite stronger fundamentals.
• Margin Expansion Pipeline: Management forecasts 50-100 bps margin growth in 2025, supported by cost discipline and scale advantages.
• Strategic Execution: The Microsoft partnership and Workspace platform upgrades are high-margin growth levers with multiyear payoff.

Conclusion: A Contrarian Play with Catalysts

LSEG’s stock is caught in a tug-of-war between its robust earnings momentum and market skepticism over macro headwinds. Yet the data shows a company outperforming its peers in innovation, cash generation, and shareholder returns. With a £62.4 billion market cap that doesn’t yet reflect its 2024 EPS surge or 2025 guidance of 6.5-7.5% organic revenue growth, this is a prime entry point.

Investors who focus on LSEG’s long-term structural advantages—its data dominance, recurring revenue models, and fortress balance sheet—will find its current valuation compelling. The near-term stumble is a buying opportunity, not a terminal threat.

Action: Consider initiating a position in LSEG, with a 12-18 month horizon, as its strategic bets and buybacks align to close the gap between earnings and share price.

This analysis is for informational purposes only. Always conduct independent research or consult a financial advisor before making investment decisions.