Portfolio manager Nick Train, who runs a number of top-performing funds, is often referred to as Britain’s Warren Buffett. This is due to the fact that Train’s investment approach is very similar to that of Buffett’s – he looks for high-quality companies with economic moats and invests for the long term.
Today, I will be looking at one of Train’s top holdings, London Stock Exchange (LSE: LSE). Over the last month, its share price has risen around 30%. Is the FTSE 100 stock worth buying now?
Refinitiv deal
Let’s start by looking at what has caused London Stock Exchange’s share price to surge recently.
The main reason that LSE shares have spiked is that over the weekend, the group confirmed that it was in negotiations to purchase market data provider Refinitiv (previously called Thomson Reuters Financial & Risk). As my colleague Karl Loomes pointed out on Tuesday, Refinitiv is a big player in the financial world. This news put a rocket under the share price on Monday morning.
Today, the group has confirmed the deal, although it is subject to approval by LSE’s shareholders and it also needs to be cleared by the authorities (that could be an issue). In terms of the detail, it’s an all-share transaction worth approximately US$27bn. The deal will result in Refinitiv’s shareholders holding an approximate 37% interest in LSE, with voting rights of less than 30%.
LSE’s board believes that the transaction will transform the group’s position as a leading financial markets infrastructure provider and strengthen its global footprint, while also enhancing its customer proposition in data and analytics. The company said: “The Transaction brings together two highly complementary businesses to create a leading, UK headquartered, global financial markets infrastructure provider with a leading data and analytics business, significant capital markets capabilities across multiple asset classes, and a broad post-trade offering, well positioned for future growth in a fast-evolving landscape.”
Given the share price rise this week, it’s clear that the market likes the deal. I do too – I think the move into financial data is smart.
Strong half-year results
Additionally, LSE has also released its half-year report today and it shows that the group’s performance over the period has been excellent. For the six months to the end of June, total revenue rose 7% to £1,018m, while adjusted earnings per share jumped 13% to 100.6p. The dividend was hiked 17% to 20.1p per share.
Combine these good results with the news of the Refinitiv deal, and it’s little surprise that the shares have moved higher. Are they worth buying now though?
No margin of safety
Personally, I do not see much value left on the table after the recent share price jump.
On current earnings forecasts (these will obviously be revised upwards if the Refinitiv deal goes through), the stock trades on a forward-looking P/E ratio of around 37, which doesn’t leave a huge margin of safety. After a 30% share price jump in a month, the risk/reward proposition is not very attractive, in my view.
As such, for now, London Stock Exchange is a stock that will remain on my watchlist. This a company that I would definitely be interested in owning one day, but right now, the price is not right for me.
