Appetite for new listings lifts profits at LSE Group

Under chief executive Xavier Rolet, the LSE has sought to broaden its earnings, moving into strong potential growth areas to offset a squeeze on profits from falling trading volumes in an uncertain economic climate and increased regulation.

The exchange took control of indexes business FTSE International in 2011 and completed the acquisition of clearing house LCH.Clearnet earlier this year.

“Today the group has a strong complementary portfolio of global brands, services and products,” Mr Rolet said.

“The first half of this year has been transformational for the group as we continue to diversify our offering.”

Clearing houses have become increasingly important after regulators phased in new rules to move more derivatives trading on to exchanges and through clearing houses to increase transparency and protect investors should their trade counterparty go bust.

The LSE said it was “even more convinced of the opportunities” for LCH.Clearnet after reporting a revision to the profit-sharing agreement with the banks that use SwapClear, the clearing house’s interest rate swap-clearing business.

The group said its share of SwapClear’s profits was expected to be around 34 per cent in 2013, versus the 15 per cent analysts were expecting.

Under the agreement, LCH.Clearnet began funding a proportion of the future development expenditure of the SwapClear service.

Barclays analyst Daniel Garrod said this was a key positive from the results that would cause “the economics of future profits from LCH’s OTC (over-the-counter) clearing operations to improve in LSE’s favour”, but the exchange’s underlying results could be considered slightly lower quality as a result.

The LSE said adjusted operating profit for the six months to the end of September rose 6 per cent to £229.9m, matching the average expectation of 11 analysts polled by the exchange.

Shares in the LSE, which have risen around 40 per cent this year, closed down 3.1 per cent at 1,552p.

Group revenue, including the contribution from LCH.Clearnet, rose 44 per cent to £504.2m.

Information and post trade services, including LCH, accounted for around 65 per cent of total revenue, which increased 8 per cent on an underlying basis.

“The focus of our attention now is with LCH,” said Mr Rolet. “We are going to continue our efforts ... to properly integrate, take cost out, and that takes a little time.”

Edison Investment Research analyst Jonathan Goslin said in a note he expected the LSE’s margins to recover as synergies between the two businesses are realised.

The LSE has also benefited from a resurgence of initial public offerings (IPOs), as strong equity markets have encouraged companies to list after several years of drought.

The amount of capital raised on its markets over the period increased 114 per cent to £16.3bn, with high profile market debuts including attractions operator Merlin Entertainments, which owns Scarborough’s Sea Life and the York Dungeons, and Royal Mail.

“The IPO market is really motoring at the moment,” said Mr Rolet.

Bankers say many firms are working on planned listings for next year, with retailers Poundland and Pets at Home among those reported to be looking at going public in London.

A healthy IPO scene in region

YORKSHIRE’s IPO scene has been hotting up recently with Premier Technical Services Group (PTSG), a Leeds-based equipment services specialist, the latest business to signal its intention to float.

PTSG’s chief executive Paul Teasdale said: “Hopefully, the future for us is becoming a public company early next year.”

Servelec, the Sheffield software group, has its main market IPO scheduled for December.

The float is expected to create a listed company with a market capitalisation of up to £140m.

Wakefield-based Bonmarche announced its intention to float on the junior Aim exchange and should make its debut later this month.