London Stock Exchange Group PLC (LON:LSE) said the company listings backdrop has begun to improve after sales growth softened in the first three months of the year amid slower equity markets.
Up against a market backdrop described as “challenging” in the first quarter to 31 March, LSE generated gross profit of £490mln, which was up 6% on the same period last year but flat against the preceding quarter, as revenues of £486mln rose 3% on the year. After last year's revenue grew 8% to £1.91bn and total income 9% to £2.14bn.
After a year when the number of new issues dropped 10% and the amount of cash raised by companies fell 35%, chief executive David Schwimmer hailed "an improved listing environment" at the start of the second quarter after slower equity markets in the first. He pointed to the £1.1bn raised in early April for Middle Eastern payments company Network International and a €2bn flotation fundraising in Milan for Italian payments company Nexi, the largest IPO in the world so far this year.
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During the quarter, no doubt with an eye on its post-Brexit future, LSE acquired a 4.9% stake in Brussels-based Euroclear, getting a seat on the board and aiming to help strengthen existing commercial relationships for its Post Trade arm.
Schwimmer, the American banker with a famous namesake who joined in April last year, highlighted the updated agreement for interest rate swap service SwapClear, which he said will deliver “significant savings as we further develop the service”, including around £30mln lower cost of sales in 2019. Analysts calculated that this would, all else being equal, drive group profit before tax up 3%.
By division, Information Services revenues were up 6% to £214mln, with 7% growth at FTSE Russell, the global indices and market analytics arm, amid strong growth in index subscriptions, while Capital Markets revenues fell 9% to £97m as equity trading volumes dropped.
In Post Trade, income was up 17% to £182mln, with 16% revenue growth in OTC following record volumes at SwapClear and “no discernible change to customers' use of the service as equivalence secured in event of hard Brexit”. Income for Post Trade in Italy was down 4% to £36mln due to the slow equity markets.
LSE shares nudged a new all-time high above 5,150p on Wednesday morning and by mid afternoon had settled at around 5,112p, up 2% on the day.
Analysts at UBS said the first-quarter gross profits were in line with consensus forecasts but revenues were 1% short as Info Services revenues missed consensus by 2% but LCH beat by 3%.
"The results themselves would probably lead to a negative market reaction but we think the new SwapClear agreement (and £30m cost-of-sale saves) is likely to provide support to the shares."
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