Investment View: Buy LSE while they're cheap and hold on to them

The British economy might still be slumbering, but despite what you might have read, parts of the City have woken up. That ought to make for good times on the London Stock Exchange, or at least the company headed by Xavier Rolet which runs the London Stock Exchange, whose markets have been soaring.

Yesterday's pre-close trading statement covered the 11 months to 28 February, and it didn't exactly look pretty. New issues down, capital raisings down, trading volumes down, average size per trade down, number of professional terminals in use, down.

In fact, the only numbers in positive territory came from MTS, the bond-trading platform.

However, the outlook could be somewhat sunnier, and that explains why the shares have been spring-heeled since I last looked at the company at the end of November.

For a start, the predicted shift by major investors into equities, first outlined by Goldman Sachs' Jim O'Neill, who is rapidly approaching guru status, appears to be happening. This has helped to drive a strong performance by the FTSE 100 over the past few months.

A rising market draws investors in, gets them trading, gets them thinking about investing and looking for opportunities – regardless of the torpor in the wider economy.

It is worth noting, anyway, that the FTSE 100 is an international market, with the majority of earnings made by its constituents from overseas.

New equity issuance by companies has picked up since the third quarter amid an encouraging recovery in the London market for initial public offerings, with the company talking up its pipeline.

The LSE has finally secured a deal to buy a major stake in LCH.Clearnet, which sits in the middle of trades to ensure they progress if one side defaults. While regulators want organisations like this to hold more capital, they are pushing for more transactions to go through them, so it should provide a source of growth.

Meanwhile, the long-term outlook for the exchange's technology and software businesses is good.

The other point to note about the LSE is that it still presents an enticing opportunity for potential bidders. Its brand and its control of Europe's biggest equity market make it an attractive target. Lots of bidders have tried and failed, but if its bosses fail to keep up the pace, one will eventually succeed. Which keeps management on their toes.

If you followed this column's advice to hold at 1,025p you'll be sitting on an attractive return. Now 1,306p, they are not cheap at 14.4 times next year's earnings, while offering a modest prospective yield of beneath 3 per cent. But I'd still be holding these shares, and for the long term.

Historically, the LSE has comfortably outperformed its own markets, and conditions are moving in its favour. The price has come off a bit over the last few days, so take the opportunity to buy a few more.

I ran the slide rule over IG with the shares at 449p in October, shortly after Peter Hetherington, its chief operating officer, offloaded 156,012 shares, realising £705,642 and more than halving his stake in the business.

No explanation for the sale was offered at the time I wrote, and I advised it might be a good time to follow his lead. Since then, it is true, the shares have picked up a bit, and the trading statement issued by the group on 12 March was encouraging enough.

While IG thrives on volatility – its clients need markets to be moving in one direction or another to make money on their spread bets or contracts for difference – falling markets aren't necessarily helpful. They sap confidence among IG's clients.

With markets rising, some of that confidence should come back, and that has partly explained a very strong run from the shares, although the economic situation in Europe and the UK is still constraining growth, particularly here.

As a rule I would tend to be cautious about companies whose executives sell lots of shares without explanation. But IG does at least appear to be in better shape than it was when I last looked.

The company's shares trade on just over 15 times forecast earnings for the year to the end of March, with a nice enough forecast yield of more than 4 per cent. So they aren't exactly bargains. I'd only be willing to buy again if the shares eased a little further, although the long-term prospects of the business merit a hold. Consider buying on weakness.

Start your day with The Independent, sign up for daily news emails
Sport
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins win the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Arts and Entertainment
tvPoldark, TV review
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor