London Stock Exchange Group shows "impressive momentum" that undermines discount rating, says bank

RBC has reaffirmed its 'outperform' rating on London Stock Exchange Group (LSEG) with a 13,200p price target, citing "impressive" H1 operational momentum, including a 7.8% rise in group income and a new £1bn buyback. Despite a softer quarter in Data & Analytics, RBC views LSEG's significant valuation discount at 22x 2026 P/E compared to the sector's 31x as a compelling opportunity. The firm anticipates further growth driven by LSEG's diversified business model and Microsoft partnership, suggesting the stock is well-positioned for a re-rating as the argument for its current discount weakens.

Analysis

RBC's reaffirmation of its 'outperform' rating on London Stock Exchange Group (LSEG) is anchored by the company's strong operational performance and a compelling valuation argument. The first-half results demonstrated robust momentum, with group income growing 7.8% and tracking ahead of targets. This financial strength is complemented by a new £1 billion share buyback program, signaling confidence from management and a commitment to capital returns. Despite a noted softer quarter in the Data & Analytics division, which is now 'on watch', the overall outlook remains positive. The core of the bullish thesis lies in LSEG's valuation, which at a 22x 2026 price-to-earnings multiple, represents a significant discount to its data provider peer group average of 31x. RBC contends that LSEG's diversified business model, structural growth tailwinds, and benefits from the Microsoft partnership weaken the case for this discount and position the stock for a potential re-rating as margins improve and strong free cash flow continues.

Key Decisions for Investors

• Investors should consider the significant valuation gap between LSEG and its peers, as the ongoing strong performance and capital returns could serve as a catalyst for a re-rating, closing this discount.
• The recently announced £1 billion buyback, coupled with 7.8% H1 income growth, provides a fundamental basis to view recent share price weakness as a potential value opportunity.
• It is crucial to monitor the performance of the Data & Analytics segment in future earnings reports, as any sustained slowdown in this key area could challenge the primary growth narrative.
• The partnership with Microsoft and the diversified business model across capital markets and post-trade services should be evaluated as key long-term growth drivers that could provide resilience and upside.