Renowned investor Nick Train, one half of the uber successful firm Lindsell Train , has praised the London Stock Exchange’s (LSE) planned acquisition of data provider Refinitiv in a $27 billion deal.
LSE is currently the fourth largest holding in Mr Train’s investment trust, Finsbury Growth and Income, and represents 9.6 percent of the portfolio. It agreed terms to purchase Refinitiv from Thomson Reuters and private equity firm Blackstone at the start of the month. The two current owners of Refinitiv would maintain a 37 percent stake in the new group created from the sale.
One pleasing aspect of the deal to Mr Train is the "wide moat" attribute. Given the sheer scale of the businesses not to mention LSE's 300 year history, there is one hell of a barrier to entry.
If the agreement was sanctioned, it would double LSE’s enterprise value, resulting in the creation of the world’s largest listed financial markets infrastructure company. This is an important point as the deal will be subject to anti-trust reviews globally, a potential hurdle to the completion of the merger.
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Mr Train thinks the price is a fair one looking at one metric. “At just over four times EV/sales, the price looks good compared to other quoted data assets and the deal has so far earned applause from both the media and the market - with LSE’s shares up 24 percent in the days since news was leaked.”
Refinitiv has lots of Thomson Reuters' legacy data platforms, such as Eikon, perhaps not as dominant as its Bloomberg counterpart but an essential part of most buy and sell side market participants.
The firm also has some great trading platforms under its belt including Tradeweb and FXAll. The former gives access to the highly liquid fixed income market and both platforms allow for electronic bilateral OTC transactions to be safely completed.
These trading platforms, alongside the well integrated data tools make a merger with LSE possibly game-changing. For a 300 year-old company, LSE still trades on a pretty racy 48-times price-to-earnings, well above its industry average.
Mr Train notes LSE's impressive record of growing its dividend at over 18 percent per annum. For an old man of listed companies, the company holds up well to the hyper growth tech stocks such as the FAANGS.
He said: "“This [dividend growth] has translated into [total] stock returns capable of outshining even the brightest tech stars. Since May 2012, when Facebook (the youngest of the FAANGs) listed, LSE’s total local-currency return has annualised at just shy of 36 percent pa; delivering a nine-fold gain that’s outpaced Apple, Google, Facebook, Microsoft and now even Amazon. Not bad for a spritely three-hundred-and-something year old, setting out on its own data-driven journey."
