My stock analysis for the London Stock Exchange Group

My investment thesis

My portfolio leans heavily toward the tech sector, so I want to balance that by adding exposure to the financial sector. But I don’t want “financials” in the traditional sense—banks and insurers come with balance-sheet risk, credit cycles, and regulatory surprises that can blow up when the macro turns.

What I’m really looking for is a different kind of financial exposure: financial market infrastructure—businesses that sit behind the system and earn recurring revenue because institutions rely on them to operate.

In other words, I want quality, strong moats, and stable growth, ideally from businesses that look more like toll roads than lenders.

Before we go further, a quick disclaimer: I am a shareholder of London Stock Exchange Group, so this is not investment advice. This is how I think through the business as a long-term investor.

London Stock Exchange Group Logo

About London Stock Exchange Group (LSEG): what the company does and how it makes money

London Stock Exchange Group (LSEG) is often misunderstood as “just a stock exchange.” It’s much bigger than that.

LSEG is a global financial markets infrastructure and data provider that supports the full market lifecycle—from trading and pricing discovery to clearing and post-trade operations.

The clearest way to understand LSEG is to view it as a platform with multiple revenue engines.

First, there’s Data & Analytics, which includes enterprise data, analytics, workflow tools, and distribution capabilities across institutions. This is where LSEG competes most directly with premium financial data providers.

It’s also where the company talks about recurring contracts and subscription value (ASV), because many of these relationships are multi-year and embedded in daily workflows.

Second, LSEG owns FTSE Russell, its global index business. Indexes aren’t just “nice to have.” They are financial benchmarks that funds, ETFs, and institutions use to build products and measure performance.

When an index becomes widely adopted, it becomes incredibly sticky.

Third, LSEG operates post-trade infrastructure, including clearing and related services. This part of the business is “market plumbing.” It’s not glamorous, but it’s essential—and the switching costs here are usually brutal because changing infrastructure introduces operational and regulatory risk.

Finally, LSEG also has risk and intelligence capabilities, as well as exchange-related revenues from its capital markets footprint. The result is a diversified model that generates revenue through a combination of recurring subscriptions, index-licensing economics, and infrastructure-linked revenue streams.

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London Stock Exchange Group’s economic moat

If I had to describe LSEG’s moat in one line, it would be this: LSEG is difficult to replace because it is embedded into how financial markets function.

The strongest driver of moat is switching costs.

LSEG’s products and services often sit inside mission-critical workflows—data feeds, analytics tools, benchmark usage, risk/compliance processes, and post-trade operations.

Even if a competitor offers a slightly cheaper product, a customer still has to weigh migration costs, retraining, operational risk, and compliance risk. In many cases, the risk of switching is not worth the savings.

LSEG also benefits from efficient scale.

Large-scale financial infrastructure and global data platforms naturally concentrate into a small group of winners. There are high fixed costs—technology, reliability, data ingestion, governance, regulatory oversight—and the world doesn’t need fifty global post-trade providers or ten different versions of the same benchmark ecosystem.

Scale is not just an advantage; it’s a barrier to entry.

Then you have intangible assets, especially through trusted brands and proprietary datasets.

In markets, trust matters. Customers don’t buy “data”; they buy confidence that the information is accurate, reliable, and delivered without interruption. LSEG’s index franchise (FTSE Russell) also sits inside this category because benchmark IP becomes a long-lived asset once it is adopted.

There is also a network effect, but it’s not the social media kind. It’s an ecosystem effect.

The more market participants and institutions that rely on a benchmark or infrastructure layer, the more valuable it becomes to everyone else. This is especially relevant in index businesses and market infrastructure, where adoption reinforces relevance.

Finally, LSEG has a scale-driven cost advantage. It doesn’t win by being the cheapest vendor. It wins by spreading fixed costs across a large customer base, reinvesting in product depth, and building a platform that smaller players struggle to match.

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The risks of investing in the London Stock Exchange Group

LSEG is a high-quality business, but it isn’t risk-free. The most important risk to watch is competition and AI-driven disruption in Data & Analytics.

The market has been repricing premium data companies because investors worry that AI and cheaper “good enough” alternatives might pressure pricing power and subscription growth. Even if LSEG builds excellent AI features, the key question is whether it can monetise them without losing pricing power.

There is also operational resilience risk. If your services are embedded in daily workflows, reliability is part of the product. Outages aren’t just inconveniences—they can damage trust.

LSEG also faces regulatory and oversight risk because infrastructure and post-trade businesses are heavily regulated. Regulation is part of the moat, but it also creates constraints and can introduce unexpected costs.

ROE, ROIC, and WACC: what it means when ROIC is below WACC, and why the London Stock Exchange Group can look “low”

On paper, an ROIC below WACC is a red flag. In theory, it means the business is earning returns on invested capital that do not cover its cost of capital—so it’s destroying value rather than creating it.

But for LSEG, the headline ROIC and ROE numbers can be misleading, mainly due to acquisition accounting.

LSEG has a large base of goodwill and purchased intangibles sitting on the balance sheet from major acquisitions. Those assets inflate the denominator of invested capital used in many ROIC calculations.

At the same time, reported earnings can be reduced by amortisation of acquired intangibles and other acquisition-related accounting items. That combination—large denominator, reduced numerator—can mechanically depress ROIC.

So the right way to interpret “ROIC < WACC” for LSEG is not to ignore it, but to diagnose it properly. The real question is whether LSEG is generating strong cash returns and improving economics on an incremental basis.

That’s why, for acquisition-heavy infrastructure and data platforms, investors often look at “ROIC excluding goodwill,” cash-based returns, and incremental return trends—because those tell you more about the underlying operating engine than the legacy accounting footprint of past deals.

In practical terms, if LSEG shows improving margins, rising cash generation, healthy recurring growth, and strong capital discipline, the low reported ROIC may be more about accounting structure than economic reality. If those fundamentals weaken, then the ROIC concern becomes much more serious.

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How does investing in the London Stock Exchange Group fit my thesis

LSEG fits my thesis because it provides financial-sector exposure without taking on traditional banking risks.

Instead of lending money, LSEG sells the tools, benchmarks, and infrastructure that financial institutions use to operate. It’s the kind of business that can compound over time because it is deeply embedded, hard to replace, and supported by recurring and infrastructure-linked revenues.

That aligns with my preference for quality, strong moats, and stable growth. It also diversifies my portfolio away from pure tech exposure while keeping me in a high-value-add business model.

Valuation of the London Stock Exchange Group

This is my valuation of the London Stock Exchange Group. If you have any questions about it, feel free to reach out to me or leave a comment.

Based on my analysis, the intrinsic value sits at GBP155.55. To be cautious, I will be looking to invest only below GBP81.00, applying a safety margin of at least 30%.

Since the market price was below GBP81.00 a few weeks ago, I started a small position in LSEG.

KPIs to monitor

I want to monitor indicators that tell me whether the moat is strengthening or weakening.

The first KPI is ASV growth, because it’s the cleanest recurring signal of Data & Analytics momentum. If ASV growth is consistently decelerating, that could indicate pricing pressure, churn risk, or competitive disruption.

Next, I want to see organic growth by division, because LSEG’s platform should not rely on only one engine.

If Data & Analytics slows, but FTSE Russell and Risk Intelligence remain strong, the story may still be intact—but if multiple engines weaken at the same time, that’s a bigger warning sign.

Then I focus on earnings trend and cash generation. For a moat business, the goal is to see the company scale profitably while reinvesting enough to defend its position.

Finally, I want management commentary to remain consistent on two points: whether AI is improving product value in ways that support monetisation, and whether pricing remains rational in Data & Analytics. Those two inputs will drive market perception in the next few years.

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Position sizing and a 3-tranche purchase plan

My sensible target range for a single core holding is often in the mid-single digits of the portfolio, depending on conviction and diversification needs. For this write-up, a 5% target position is a practical anchor: large enough to matter, but not so large that it becomes accidental concentration.

I would then build the position in three tranches.

The first tranche is the starter position, which I started recently and is around 30% of the target, sized to provide exposure while I continue monitoring the KPIs.

The second tranche is around 40% of the target. I would add either on a meaningful pullback while the thesis remains intact, or after results confirm that ASV growth is tracking well.

The third tranche is around 30% of the target. I would only complete this once I’ve seen clean execution across at least one to two reporting periods—especially around Data & Analytics momentum and management’s ability to defend pricing in an AI-heavy narrative environment.

The discipline here is simple: I’m not averaging down just because the stock price falls. I’m adding only when the business performance confirms that the moat is intact and the compounding engine is still working.

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