The London Stock Exchange Group PLC (LSE:LSEG)’s third-quarter results hit the mark and then some today, with shares bouncing more than 3% higher on the FTSE 100.
According to UBS, LSEG’s total income of £2.12 billion was 0.8% above what the markets were expecting.
The capital markets division, which soared by 22.4% year on year on an organic basis, impressed the most with a 4.9% forecast beat.
This might sound surprising given the nearly non-existent IPO pipeline in LSEG’s home market, but that belies the reality of what LSEG’s capital markets offering encompasses.
Indeed, equities trading only brought in around 13% of LSEG’s total capital markets take, having increased 8.5% to £60 million.
‘Fixed income, derivatives and other’, on the other hand, accounted for the lion’s share after surging 27% year-on-year to £341 million, marking a new record for the segment.
An LSEG source offered a deeper insight into these numbers, partially attributing the strong institutional trading activity in this segment to interest rate derivatives.
These products allow clients to hedge their exposure to interest rate changes. They can also be used for speculative investing purposes.
Given the substantial uncertainty around the direction of central bank interest rate policy among the largest economies, it stands to reason that institutional clients are seeking to manage their risk.
LSEG also clears these products, adding further income to the post-trade line.
LSEG substantially increased its ability to provide these types of products when it acquired Refinitiv in 2021 (or more specifically, the controlling interest in electronic trading platform TradeWeb that came with acquiring Refinitiv).
Given the exponential growth in fixed income and derivatives that came with taking a controlling stake in TradeWeb, the $27 billion Refinitiv acquisition has clearly paid off.
Following today’s results, UBS slapped a 10,100p price target on LSEG shares and Jefferies a 12,500p price target.
Neither price targets are particularly bullish given LSEG’s current 10,700p share price, but this is more reflective of the stock being “largely fairly priced” than anything else.