Why London Stock Exchange Group is now a value stock

The London Stock Exchange Group (LSEG) announced a big increase in its dividend and an expanded share buyback programme as it looks to return more of its growing cash flow to shareholders.

The financial data analytics company has performed well in the past year, but its shares have sold off, possibly in response to AI disruption fears. Management is using this as an opportunity to buy back stock. It has already purchased £415mn in the year to date and plans to complete another £3bn buyback by February 2027, an increase from the £2.1bn it returned in 2025.

These purchases are being funded through free cash flow. The company’s equity free cash flow rose 12 per cent year on year to £2.5bn, and is expected to rise to £2.7bn next year. LSEG is turning more than a quarter of its revenue into free cash and, in the medium term, management is guiding for cash flow to grow at a double-digit rate.

The AI disruption story could apply to its Workspace data analytics platform, as banks might conceivably be tempted to try to replace it with in-house versions. However, LSEG owns a lot of proprietary data which is customers will still need to purchase. This year, it signed deals with AI companies Anthropic, Databricks, Microsoft (US:MSFT), OpenAI and Snowflake (US:SNOW) to give them access to its licensed data.

The stock’s sell-off this year combined with its growing cash flow means it now looks like a value stock. Since the start of last year, its free cash flow yield has risen from 3 per cent to 6 per cent. That’s good value for a company increasing profits at a double-digit rate. Buy.

Las IC View: Buy, 11,735p, 27 Feb 2025