ICE/LSEG: New York’s strength gives London the delta blues

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Over the past two decades, the mantra for stock exchange operators has been diversification at all costs. First came an expansion into trading other asset classes such as derivatives. Then it was a move into clearing and settlement. More recently, these businesses have pushed into data and risk management.

Diversification has made these companies financial estuaries. Trading and listing fees ebb and flow with the wider market. Cash channels never drop too low thanks to steady sales of data and analytics. These also swell valuation multiples.

Intercontinental Exchange and the London Stock Exchange Group, which both reported results on Thursday, demonstrate differing impacts from tides and torrents. ICE owns the New York Stock Exchange and is one of the largest bourse operators in the world. LSEG makes most of its money from data services following acquisitions culminating in Refinitiv.

US stock markets are booming again and London is falling behind its rivals. The combined market value in of LSE-listed companies stood at $3.18tn as of end of June, a 0.7 per cent drop from two years ago, according to the World Federation of Exchanges. The equivalent figure for the NYSE increased 3.4 per cent to $24.8tn over the same period.

Net revenue at ICE’s exchanges business, its biggest unit, rose 9 per cent to $1.09bn from a year earlier. That helped the company deliver a 44 per cent increase in net income for the quarter, despite weakness in its mortgage software business. By contrast, LSEG, which generates two-thirds of its revenue from selling data and analytics, reported an 18 per cent drop in group pre-tax profits for the first half.

LSEG shares are up just 0.4 per cent over the past 12 months, compared to ICE’s 7.4 per cent gain. Even so LSEG still commands a premium over ICE on a price to forward earnings basis. This reflects hopes that problems integrating Refinitiv are over. If so, expect riverine flow to buoy LSEG higher, even as ICE bobs up and down in stronger tides of trading.