M.Stanley lifts LSEG to Top Pick, says reaction to H1 results is ’overdone’

Investing.com -- Morgan Stanley (NYSE:MS) has named London Stock Exchange Group (LON:LSEG) as its Top Pick, arguing the recent market reaction to the company’s first-half (1H25) results was excessive.

The bank raised its earnings per share (EPS) estimates for 2025 to 2027 by around 3%, citing foreign exchange gains and the impact of a £1 billion share buyback.

“The reaction to 1H25 results looks overdone,” analyst Bruce Hamilton wrote in a note.

While it cut subscription revenue growth assumptions by approximately 60 basis points, Morgan Stanley still sees group revenue growing at a compound annual rate above 7% through 2027, with EBITDA and EPS growth projected at 9% and 11%, respectively.

The Wall Street firm noted a deceleration in LSEG’s Annual Subscription Value (ASV) growth to 5.8% in the second quarter, down from 6.4% in Q1, largely due to four contract cancellations.

However, it pointed out that ASV doesn’t fully capture usage-based and asset-based revenues, which are becoming more important for the group. As a result, the report argued, the slowdown may be overstated.

“The latest data points clearly indicate growth moderation from a more aggressive competitor response in desktop and real-time data in selective cases, though growth is still a healthy ~6%,” Hamilton noted.

Morgan Stanley also said its meetings with LSEG management provided reassurance on the sales pipeline and pricing outlook.

According to the note, management sees the Q2 impact as limited to specific competitive situations rather than a broad deterioration in demand.

The product rollout and improved service offering are expected to support gross sales in 2026, and the company anticipates taking “at least as much price in 2026 as 2025,” or 3%+.

The bank also sees the rise of generative AI as a net opportunity rather than a threat, arguing that “the breadth of trusted and accurate data (including proprietary data)” gives LSEG a strong position in meeting AI-related data demand.

LSEG’s valuation remains a key argument for the upgrade. The stock trades at 22.5x 2026 earnings, or around 18.5x on a cash-adjusted basis. This compares to U.S. peers averaging 31x and FactSet at 21.5x.

The bank lowered its price target slightly to 12,200p, but still sees about 25% upside, calling the current valuation “extremely undemanding.”