London Stock Exchange Group LSE reported a 6% yearon- year increase in revenue–which the exchange operator calls total income–to about GBP 209 million in the third quarter of the company’s 2013 fiscal year, up from about GBP 196 million in the year-earlier quarter. The company is making progress toward our full-year revenue target and we are not making changes to our GBX 1,000 per share fair value estimate at this time.
Cash equities revenue was down 18% to GBP 23.3 million, reflecting restrained trading activity, and the overall capital markets revenue fell 4% to GBP 66.3 million. While we think trading conditions will improve, we do not expect them to be ideal in the near future. Still, we were heartened by LSE’s outlook that sees the fourth fiscal quarter as off to a good start in capital markets, with signs of capital-raising moves and improvements in cash equities.
Information services revenue was up 44% to GBP 76 million, continuing to benefit from LSE’s recent full acquisition of FTSE. Net treasury income declined somewhat from its recent elevated levels, falling to GBP 27.8 million from GBP 33.5 million a year earlier. Although this volatile business that collects interest on funds held for margin has performed better so far in fiscal 2013 than we anticipated, it is expected to contract further because of new regulatory requirements.
Looking ahead, the trading environment may remain murky and net treasury income will also add a dose of uncertainty to LSE’s results. However, we think the company’s pending acquisition of a majority stake in LCH.Clearnet looms as an opportunity to expand in the clearing business. LSE management said the company continues to work on completing the transaction, having secured most regulatory clearances, and is now finalizing things.
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