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UPDATE 2-LSE bullish on outlook despite failed merger, Brexit uncertainty
June 12, 2017 / 3:46 PM / 4 months ago

UPDATE 2-LSE bullish on outlook despite failed merger, Brexit uncertainty

* LSE shares fall 1.6 percent

* Indices, clearing to drive bulk of growth (Adds Rolet’s comment on mergers, depositories)

By Noor Zainab Hussain and Huw Jones

LONDON, June 12 (Reuters) - 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 percent by 2019, up from 46.5 percent 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.

Analysts have said the merger collapse showed big bourse deals were off the agenda, but Rolet said asset managers, pension funds and banks want an exchange group with a global reach in a sector that is still a “construction site”.

“There is nobody today that has a complete suite of global businesses ... M&A is probably going to continue. In fact, it never has stopped,” Rolet said.

The exchange said it would cut costs by 50 million pounds ($63 million) annually until 2019, while operating expenses would remain stable at around a 4 percent 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”.

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.

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 LSE was looking at whether it should buy or build an international central securities depository (ICSD) to have a global collateral framework for customers, after the merger collapse meant Deutsche Boerse’s ICSD would not be part of the group, Rolet said.

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

$1 = 0.7891 pounds Editing by Edmund Blair

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