Is Now the Time to Buy London Stock Exchange?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market. So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at London Stock Exchange (LSE: LSE  ) (NASDAQOTH: LDNXF  ) to determine whether you should consider buying the shares at 1,342 pence.

I assess each company on several ratios:

  • Price/earnings: Does the share look like a good value when compared against its competitors?
  • P/E to growth: Does the share look like a good value when factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend cover: Is the dividend sustainable?

So let's look at the numbers:

Stock

Price

3-Year EPS Growth

Projected P/E

PEG

Yield

3-Year Dividend Growth

Dividend Cover

London Stock Exchange

1,342 pence

67%

14.3

N/A

2.2%

16%

3.6

The consensus analyst estimate for this year's EPS is 94 pence (5% fall), and dividend per share is 29.8 pence (5% growth).

Trading on a projected P/E of 14.3, London Stock Exchange appears cheaper than its peers in the general financial sector, which are currently trading on an average P/E of around 23.

Unfortunately, London Stock Exchange's P/E ratio and falling near-term growth rate give a negative PEG ratio, which cannot be of any help with my analysis.

London Stock Exchange offers a 2.2% dividend yield, which is below the sector average of 3.6%. In addition, the company has a three-year compounded dividend growth rate of 16%, which looks impressive but also implies that the yield might lag behind that of its peers for some time to come.

Having said that, the dividend is more than 3.5 times covered by earnings, giving the company plenty room for further payout growth.

So is now the time to buy London Stock Exchange Group?
The London Stock Exchange is a world leader in the provision of services and data for the financial markets, as well as the running of stock exchanges and clearing houses around the world.

It appears that London Stock Exchange's market-leading position has allowed the company to grow rapidly over the past few years despite the economic turmoil. Indeed, since 2007, the company's earnings have grown on average 14% a year.

However, as I have written above, many City analysts forecast the company's earnings will fall 5% this year and a further 2% during 2014 as the firm contends with rising competition and increasing regulation within the financial sector.

Furthermore, the company is facing increasing scrutiny over its recent acquisition of LCH.Clearnet, the transatlantic clearing house. In particular, investors are worried about the fact that LCH is facing a 320 million euro capital shortfall and that revenue is falling rapidly in some of its key markets as trading volumes plummet.

So, all in all, based on the company's falling near-term earnings and lower-than-average dividend yield, I believe now does not look to be a good time to buy London Stock Exchange Group at 1,342 pence.

More FTSE opportunities
Although I feel now may not be the time to buy London Stock Exchange Group, I am more positive on the five FTSE shares highlighted within this this exclusive wealth report.

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In the meantime, please stay tuned for my next verdict on an FTSE 100 share.


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12/18/2014 7:14 AM
LSE $2167.00 Up +36.00 +1.69%
London Stock Excha… CAPS Rating: No stars

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