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Data is better than most other commodities. Each dollop of data increases in value proportionately to how many other dollops you possess of roughly the same thing. The London Stock Exchange Group illustrates that proposition as ably as US tech giants.
LSEG has added to its vaults of data on securities by acquiring business such as Refinitiv and FTSE Russell. It sells the information and also uses it to structure its services. These include post-trade, an unglamorous but fast-growing specialisation encompassing clearing and regulatory reporting.
A third-quarter trading update showed that LSEG’s organic revenue growth — net of acquisitions and foreign exchange movements — was almost 8 per cent up on the previous year.
While equity markets have hit the doldrums this year, not so bonds. Fear of persistent inflation has led to frenetic trading, greater interest rate volatility and a search by businesses to seek cheaper financing. As US long bond yields arc to historical highs, and close the gap with short-term rates, business is brisk for LSEG.
This matters to the post-trade division. At about a seventh of group revenues, it is a tiddler compared with its data and analytics group at 67 per cent. But operating margins are high and steady near 40 per cent. Organic revenues grew 13 per cent over nine months.
Clearing business LCH is the engine room of the division. LCH clears about 90 per cent of global activity in interest rate swaps. These derivatives enable borrowers to shift their financing along the interest rate curve. Over-the-counter derivatives produced 9 per cent year-on-year top line growth in the third quarter.
One proxy for increased interest rate volatility is Bank of America’s MOVE index. This has soared to 16-year highs. The boom cannot last, of course. Markets will settle as inflation abates.
LSEG’s shares rose nearly 3 per cent. Over a longer period, the stock has outpaced rival Euronext, while trading at twice the forward price earnings multiple (24 times).
But after years of integrating its enormous $27bn Refinitiv acquisition, LSEG’s business has bedded in. Next month’s investor meetings must reveal new lines of growth from the group’s data hoard.
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