London Stock Exchange
No matter what trauma was occasioned by the failure of the proposed merger with Deutsche Börse, and no matter how it has derailed the retirement plans of Xavier Rolet, the chief executive, the LSE seems to be doing rather well on its own. The first-quarter figures seem to confirm some suspicions that the merger was rather more advantageous to the Germans than to London, with revenue growth across the group up by 8 per cent in real terms.
The LSE chose to hand back £200 million to investors when the merger failed last month by means of a share buyback, which is supposed to stand in the stead of the proposed special dividend they would have received had the deal gone through. This is a fairly small sum given the LSE has about £1.3 billion of borrowing facilities available.
This rather suggests that further deals, as Mr Rolet indicated yesterday, are on the cards. It is impossible to guess where these might come from — the chief executive himself probably does not know. They will be in the information services or post-trade areas that are the standout performer in the first-quarter figures.
They will probably be of businesses that no one has yet heard of — the LSE chose yesterday to reveal that the last acquisition, of the American company Mergent, completed at the start of the year, cost the equivalent of £116.7 million, and it is hardly a household name. Mergent provides data that go into the creation of indices of the sort offered by FTSE Russell, which makes up the majority of the information services side.
The underperformer is the old capital markets division, less than a quarter of revenues these days, though there is the potential for some upside if IPOs or equity markets activity return. Information services and post-trade, including LCH, the clearing service, each account for a third of the business.
The performance of LSE shares has been remarkable since the merger collapsed, and they gained another 41p to £33.48 on the first quarter figures. They sell on about 24 times earnings, which is hard to justify unless you believe that Intercontinental Exchange or any other of the putative bidders will finally come knocking. This on the face of it looks unlikely.
My advice Avoid
Why The shares trade on a hefty multiple which seems to have much future growth built in along with a considerable degree of bid premium
GKN
There is a strong argument against quarterly reporting, especially for a company such as GKN that has a number of moving parts, selling into the automotive and civil and defence aerospace sectors. The market can take too much from one set of data that may not reflect the real long-term picture. GKN therefore took the decision not to report actual numbers for the first quarter of this year, even if the trajectory across the business is generally positive. The company is well positioned to supply the four-wheel-drive market and it is already contributing to the F-35 Joint Strike Fighter programme in the US. Aerospace, though, in the first quarter was probably the weakest performer while its Driveline business, which supplies the four-wheel-drive market, did better than expected in what was a strong period for the industry as a whole.
GKN can therefore be expected to continue to beat the overall performance in the automotive industry, where production is set to grow by a muted 2 per cent this year. The earlier acquisitions of Volvo and Fokker will continue to perform and analysts are expecting a further 10 per cent rise in revenues this year.
The shares fell 6½p to 359½p. They were already up by 10 per cent or so this year, and the market appears to have taken to heart some cautious comments that the rate of growth in the first quarter may not be sustained. GKN is the classic macroeconomic play and, on ten times earnings, the shares do not look overly expensive.
My advice Buy
Why Prospects for the current year look solid enough
Jupiter Fund Management
Last year was not a good one for the fund management industry. Shocks such as the referendum tended to put investors off. The first quarter, though, to judge from the companies that have already reported, has brought some return of confidence. Jupiter had its best quarter since it floated in 2010, with a rise in funds under management from £40.5 billion at the end of December to £43.5 billion.
Part of this was the effect of market and currency movements, but there was a net inflow of £1.3 billion. Within its mutual funds, which mainly end up with retail investors, the inflow was £1.4 billion. Jupiter is also gaining from the wider range of funds it offers and from expansion of the international side after opening offices in Italy and Spain.
The shares, along with others in the sector, have offered a good yield — three years ago Jupiter initiated special dividend payments, having cleared its debt. They rose 6¼p to 471p, a new high, after yesterday’s better than expected numbers. This means that yield is less stellar, though it is still a decent 5.9 per cent. That high price does not suggest any immediate reason to buy, though.
My advice Hold
Why Yield is good but no obvious upside to share price
And finally...
This column singled out Mariana Resources at the start of the year for its stake in the Hot Maden gold and copper mine in northeast Turkey. The promise of this has not gone unnoticed by Sandstorm Gold, which has 7 per cent and has launched a cash and shares offer for the rest. This is at a high premium to the current price, worth almost 110p at Tuesday night’s close, and Mariana shares were up by 61 per cent. Continuing investment in a New York-quoted company, though, may not be to everyone’s taste.
