LSE bullish on outlook despite failed merger, Brexit uncertainty

[LONDON] The London Stock Exchange expects its indices and clearing businesses to drive growth in core profit margin between now and 2019, the company said on Monday, shrugging off concerns over the collapse of a planned merger with Deutsche Boerse and uncertainty over Brexit.

LSE expects to increase its profit margin for earnings before interest, tax, depreciation and amortisation (EBITDA) to about 55 per cent by 2019, up from 46.5 per cent last year, it said in a statement.

Chief Executive Xavier Rolet told an Investor Day event that the "energised" and "globally competitive group" continued to see growth and investment across all of its core businesses.

The bullish outlook comes despite the collapse of a merger that was expected to help it compete better with rivals such as Intercontinental Exchange Inc, and despite heightened uncertainty surrounding Britain's intended departure from the European Union in 2019.

Britain's future relations with the EU appear even less clear after Prime Minister Theresa May's Conservative party lost its majority in an election. Rolet made no mention of the vote or its impact in his initial address.

The exchange said it would cut costs by £50 million (S$88.1 million) annually until 2019, while operating expenses would remain stable at around a 4 per cent increase.

The bulk of growth will come from the group's FTSE Russell indexes unit in a sign of how exchanges are diversifying from their traditional trading platforms into what the Intercontinental Exchange calls "content".

Mr Rolet said there would also be double-digit revenue growth at its the LCH clearing unit, despite threats from the European Union to shift the clearing of euro denominated derivatives from London to the continent after Brexit.

New EU securities trading rules known as MiFID II come into effect next January to introduce more "open access" competition in clearing.

Mr Rolet said most exchanges hated it, but "this group will be able to take full advantage of that regulation". The group operates the Milan stock exchange and a clearing unit in Paris.

The upbeat outlook, however, failed to stop LSE shares closing down 1.6 per cent, when the broader market was only slightly lower.

REUTERS