Right now, I have cash to invest within my Stocks and Shares ISA. And one investment I’m considering is London Stock Exchange (LSE: LSEG) shares. Here’s why the FTSE 100 stock is on my radar.
Multiple competitive advantages
London Stock Exchange Group is a leading financial markets infrastructure and data business. And what strikes me about the company is that it has multiple competitive advantages.
One is its monopolistic position in terms of the operational side of the UK’s financial markets. Here, it facilitates equity, debt, and exchange-traded product (ETP) trading.
Another is its ownership of FTSE Russell. FTSE and Russell are some of the most well-known financial market indices in the world, and they’re unlikely to stop being used by investors anytime soon.
The company’s recent acquisition of Refinitiv also provides a competitive advantage, to my mind. Refinitiv data is used by financial institutions across the world. And their use of it is pretty ‘sticky’. In other words, once they’ve signed up for it, they’re unlikely to switch to another data provider.
Given these competitive advantages, I reckon London Stock Exchange is well-placed to grow its revenues and profits in the years ahead.
A recently-announced partnership with tech giant Microsoft has also piqued my interest. As part of the deal – which will see the two companies work together to develop next-generation AI and cloud-based data and analytics services – Microsoft will acquire a 4% stake in LSEG.
In a statement, London Stock Exchange said that the deal is expected to increase its revenue growth “meaningfully” over time as new products come on stream.
This strategic partnership is a significant milestone on LSEG’s journey towards becoming the leading global financial markets infrastructure and data business, and will transform the experience for our customers.
London Stock Exchange Group CEO David Schwimmer
It’s worth noting that top portfolio manager Nick Train, who owns the stock in his UK equity portfolio, has described this development as “massive”.
Finally, the company’s valuation looks quite attractive, to my mind.
Currently, analysts expect LSEG to generate earnings per share of 20.9p for 2023. That puts the stock on a price-to-earnings (P/E) ratio of just 21 right now.
I think that’s quite reasonable, given the company’s competitive advantages and growth prospects.
LSEG is on my investment shortlist
Of course, there are risks to consider here. Right now, technology stocks are a little out of favour. If sentiment towards this area of the market remains weak, London Stock Exchange shares may underperform.
Debt is another issue to consider. At 30 June, net debt stood at £7.2bn. I’d like to see the company pay this down.
Overall, however, I think the stock has an attractive risk/reward skew at present. So I’ve put it on my ISA investment shortlist.