I don’t intend on selling any of my shares in the London Stock Exchange Group (LSE:LSEG) for the foreseeable future. UK heritage brands like this often possess intangible assets that maintain their value over long stretches of time.
The company has been around for centuries. It is the epitome of consistency, long-term value, and global repute. I believe this reputation gives the stock exchange a premium over others and underscores its wide economic moat.
Furthermore, the organisation’s ability to keep itself relevant to corporate demands has supported its explosive growth. A timely merger in 2007 with Borsa Italiana (the Milan Stock Exchange), put the Group on the fast-track to success. Since then, stakes in clearing house LCH.Clearnet and interest rate swap business TradeWeb have future-proofed its offer.
This series of strategic masterclasses has resulted in the stock delivering an eye-watering return of 1,046% to investors within the last decade. Talk about getting a significant bang for my buck.
Even just this week, the shares surged on the back of even more reinvention. Microsoft was revealed to be buying a 4% stake in the bourse under a 10-year strategic partnership to transform the exchange’s data and analytics.
Long track record of success
It doesn’t surprise me to see the stock’s value in positive territory this year — up 7% in a year when FTSE 100 valuations have broadly declined. The FTSE 100 itself is in negative territory.
I also see the stock as a reasonable downside hedge for future market turmoil. The Group benefits from market volatility. Elevated trading volumes contribute to the exchange’s income. Meanwhile, annual earnings are forecast to grow in the double digits.
I expect both of these headline factors to be favourably priced into the share price as time passes.
Bumpy road to success for this stock
However, there are some headwinds to be mindful of regarding the Group’s growth potential. A weak pound, Brexit, and a dwindling IPO pipeline are threats to London’s position as a leading equity market. Fewer firms listing on the London Stock Exchange could limit future growth prospects for the company.
There was already a fear following Brexit that the stock exchange’s reputation as the top global destination for listings would be under threat. So, it has proven. Its share of the total listing proceeds in Europe has fallen 40% in the six years since the vote, according to Bloomberg.
Despite some clear headwinds for LSEG, I consider it a heritage stock with solid fundamentals. I believe the positives as a defensive long-term growth stock simply outweigh the risks I see.
It was Warren Buffett who I think coined the expression ‘economic moat’. For me, his best case-study is Coca-Cola — a company he backed all the way based on the company having the world’s strongest brand, scale, and reach.
I view the LSE as my Coca-Cola — it is a long-lasting monopoly stock I am unlikely to ever sell.
