The London Stock Exchange Group (LSE:LSE) has seen an incredible share price rise over the past 10 years.
If you’d invested £1k in LSE shares back in 2010, today that investment would be worth over £11,762. That’s an increase of over 1,000% in a decade as the share price has risen from approximately £6.40 back then, to £75.40 today.
Historical roots
As well as being home to the main UK stock market listings, LSE is a listed company in its own right. It has a £26bn market cap and strong origins in British financial history. The London Stock Exchange can trace its roots back to 1698, but the official London Stock Exchange Group, as discussed here, was created in 2007. That was when the London Stock Exchange merged with Borsa Italiana, the Milan Stock Exchange.
LSE is a global financial markets infrastructure business. This means it makes money through a diversified range of business interests. Its capital markets division operates various financial markets. Its FTSE Russell Information Services division has over $16 trillion benchmarked to its indexes and provides data, research, and analytics services. This means LSE has several revenue streams.
Riding the wave of good fortune
2019 was another good year for LSE shares as they rose over 91% from January to December. This was partly thanks to its bid of £22bn on financial data firm Refinitiv. Both shareholders and the public deemed this a good move, as it could mean elevating LSE to a position to rival Bloomberg. Its share price also spiked when the Hong Kong Stock Exchange attempted to initiate a takeover with a bid of £32bn. Shareholders and the public didn’t welcome the bid, and it was rejected, but the move increased faith and sentiment surrounding the group.
Potential hurdles ahead
LSE offers a very low dividend yield of less than 1%, and its price-to-earnings ratio has skyrocketed to nearly 55%. These financial metrics don’t make it an appealing buy at the moment.
LSE has proven itself a stable and established company, so I don’t think it’s a risky investment. I do, however, think that LSE shares are overpriced at their current level. For another great rise to take place in 2020, I think something pretty significant would have to occur.
Brexit uncertainties have depressed the value of UK-listed firms, making the prospect of going public less appealing to private companies. In 2019, only 34 companies applied to be listed in the UK, in line with a marked decline in the proportion of publicly listed companies in major stock markets worldwide. This might be a worrying trend for the future value of LSE shares.
Nevertheless, once Brexit has concluded, the British stock market could regain its appeal, meaning these uncertain times could be temporary.
As far as FTSE 100 stocks go, the London Stock Exchange Group has a lot to like. I think its low dividend yield is disappointing, but it’s covered by more than twice its earnings per share. This is a good ratio and means it’s unlikely to be at risk of a cut. I would expect a higher yield from a company that has seen such a rising success in its share price. If I owned LSE shares I’d be holding on to them, but at their current price, I don’t consider them a good buy.
