Despite negative sentiments surrounding the health of London’s stock market, the organization managing the exchange is performing exceptionally well. The London Stock Exchange Group, identified by its ticker LSEG, currently ranks as the ninth largest company in the FTSE 100 by market capitalization, surpassing major firms such as GSK, Rolls-Royce, and Diageo.

Under the leadership of David Schwimmer, who assumed the role of chief executive in 2018, the financial services company has successfully shifted its strategy from focusing primarily on the exchange to establishing itself as a foremost data provider. A significant portion of its recent growth is attributed to its acquisition of Refinitiv, which has bolstered its data offerings and contributed to the re-evaluation of LSEG shares.

The majority of LSEG’s revenue—approximately £3.9 billion out of a total of £8 billion last year—comes from its data and analytics segment, followed by £1.5 billion from its capital markets division that encompasses trading for equities, foreign exchange, and fixed-income derivatives. The post-trade operations have similarly produced around £1.2 billion, focusing on risk management and other trading support services.

According to estimates from brokerage firm Jefferies, the data segment alone is projected to account for over 20 percent of the group’s top-line growth in the next two years. Analysts predict that this division will outpace its competitors with a compound annual growth rate (CAGR) of 7.7 percent during the same period.

This growth is particularly appealing as it stems from a segment that generates consistent, high-margin profits. Over 70 percent of LSEG’s revenue is derived from recurring income tied to data subscriptions and licenses. This business model ensures a high client retention rate, with contracts typically spanning 12 to 24 months, providing substantial visibility into future performance. Notably, the company boasts an impressive adjusted profit margin of 48 percent.

The revenue sources for LSEG are globally diversified: around 40 percent comes from the Americas, 43 percent from the Europe, Middle East, and Africa region, and 15 percent from Asia Pacific. While some investors may express concerns regarding the stability of the American economy, the reliability of LSEG’s income coupled with the defensiveness of its offerings should help safeguard its growth.

Additionally, LSEG has established a partnership with Microsoft. In 2022, Microsoft acquired a 4 percent stake in LSEG, and since then, the two entities have collaborated to integrate LSEG data into Microsoft Teams and Office 365 products such as Word and Excel. They have also introduced tools like ‘meeting prep’, which uses LSEG data to generate tailored reports for finance professionals preparing for meetings.

LSEG is anticipated to report its annual results for the 2024 financial year on February 27. City analysts predict an 8 percent growth in sales, reaching £8.6 billion, while earnings per share are expected to rise by 9 percent to 353.11p. LSEG’s shares have increased by 18 percent since Tempus last rated the company as a ‘buy’ in July. The stock now trades at 28.5 times projected earnings for the next year, compared to a ratio of 26 from the summer.

Although this price-to-earnings ratio isn’t particularly low, it still presents a reasonable opportunity for investing in a high-quality, defensive asset with significant growth potential. Furthermore, the shares are approximately 10 percent cheaper than comparable American competitors such as FactSet, S&P Global, and MSCI, despite LSEG’s promising earnings per share growth rate forecast of 13 percent over the next two years, exceeding the average of 11 percent, as noted by Bank of America.

Advice Buy

Why The business is resilient with strong growth potential

Personal Assets Trust

The market has started the year on a shaky note, with recent technology sell-offs driven by concerns about an AI bubble and fears of a looming trade war. This uncertainty has increased interest in wealth-preserving funds, like the FTSE 250 Personal Assets Trust.

With a portfolio valued at £1.6 billion, the fund has seen gains from the search for safe-haven assets—around 13 percent of its investments are in gold bars, coinciding with gold prices reaching a record high of $2,911.72 an ounce this week.

The fund’s investments are managed by Troy Asset Management. Over 33 percent of its portfolio is allocated to American Treasury inflation-protected securities (TIPS), while about 30 percent is invested in established firms like Unilever, Diageo, and Microsoft.

Additionally, the portfolio maintains significant liquidity, with less than 1 percent held in cash, approximately 15 percent in short-term U.S. Treasuries, and 7 percent in short-dated gilts, which are U.K. government bonds. These assets are generally very liquid and can be quickly converted to cash.

This diversified, risk-averse strategy is primarily designed to avert loss of capital due to declining markets and inflation, as well as to steadily enhance value. Its performance has been commendable, with a net asset value return of 7 percent over the past year, compared to a 3 percent increase in the U.K. retail price index. In the decade ending December 2024, it achieved a return of 66 percent, compared to a 52 percent rise in the RPI.

This column last advised Personal Assets as a ‘buy’ in the previous summer. The shares have appreciated by 5 percent since then, with roughly half of this increase occurring in the current year as market trends shift and investors pursue less volatile investment strategies. At a modest 0.7 percent discount to its net asset value, shares of the fund still provide good value for a balanced investment approach.

Advice Buy

Why A well-structured portfolio ensures stability