Nick Train (pictured) has hailed the “concinnous” match-up between one of his largest holdings, the London Stock Exchange, and Refinitiv but has expressed reservations over whether the “wide-moat marketplace business” will be able to transition to a global company.
News that LSE would be buying Reuters’ financial and risk business Refinitiv for $27bn “eclipsed” a busy month of company updates, Train reflected in the latest monthly factsheet for his Finsbury Growth and Income Trust.
The firm is currently the fourth largest holding in the £1.9bn trust, representing 9.6% of the portfolio.
LSE’s largest attempted deal, if approved, would more than double the company’s enterprise value, said Train, creating the world’s largest listed financial markets infrastructure company and a credible rival to Michael Bloomberg’s financial news and data empire.
Though Train muses “the deal has so far earned applause from both the media and the market” with shares jumping 24% in the days following the news leak, he expressed some reservations about the alliance.
“If we have a concern about these wide-moat marketplace businesses, it’s how they manage the transition from regional semi-monopolies to relevant global enterprises – an increasingly important question as customers and liquidity pools globalise,” he said.
Pros and Cons
Train said Refinitiv would help LSE bridge this gap well. Its North American and emerging markets derived revenues are more than double those sourced from Europe which is “a contrast to the UK-centric LSE where these weightings are reversed”.
“Less happily” is the fact Refinitiv brings with it “a big chunk of debt”. However, the Finsbury Growth & Income manager said this is “the only obvious blemish” on a pairing that is otherwise “concinnous”.
In addition to Refinitiv’s ability to expand LSE’s global reach, Train touted its significant stakes in “market leading” electronic over-the-counter (OTC) trading venues, including FXall and Tradeweb, which would be clear complements to the London exchange.
“Akin to LSE’s existing marketplace businesses, these benefit from high volumes and deep pools of liquidity,” he said. “This leads to a virtuous cycle, whereby more flow begets more liquidity and utility, attracting more participants and even more flow.
“Surrounding all this is a halo of correspondent data, which becomes more useful the more of it there is. These self-reinforcing network effects have always been central to our thesis for LSE.
“By increasing the group’s exposure to currencies and fixed income (two of the world’s biggest asset classes) LSE is also furthering long-held strategic ambitions, positioning it nicely for the ongoing electronification of OTC trading.
“Whilst we’re cautious of being overly effusive (there are still nuances to understand, not least detail on the proposed revenue synergies), it’s no wonder the initial reaction has been positive.”
During July, Finsbury Growth and Income returned 3.4% on a share price basis. Net asset value rose 3.8% while the FTSE All Share was up 2.0%.
