Solid quarterly earnings help London Stock Exchange focus on merger

(Reuters) - London Stock Exchange Group Plc LSE.L reported a jump in third-quarter earnings, helped by a weaker pound and putting the company on a sound footing as it focuses on its merger with Deutsche Boerse DB1Gn.DE.

A man shelters under an umbrella as he walks past the London Stock Exchange in London, Britain August 24, 2015. REUTERS/Suzanne Plunkett

The exchange operator, which is in talks to sell its French clearing business to ease EU regulators’ concerns that the merger will hinder competition, said on Thursday it was confident of addressing those worries.

“We remain focused on achieving the necessary regulatory approvals to complete the merger with Deutsche Boerse, creating a global markets infrastructure group,” LSE Chief Executive Xavier Rolet said in a statement, but gave no new information on the deal’s progress.

LSE, which also owns Borsa Italiana, saw strong business in the third quarter as the London stock market hit record high levels and benefited from a slide in the pound since Britain’s June 23 vote to leave the European Union.

In its first set of results since the vote, LSE said its total income from continuing operations rose 19 percent to 414.6 million pounds in the quarter ended Sept. 30.

That beat LSE-provided consensus estimates from four analysts of 397.2 million pounds.

Shares in the exchange operator were up 0.6 percent at 2,831 pence at 1111 GMT, a modest gain as investors said the weak pound was factored into the share price and there was still uncertainty about whether the $28 billion merger would go through.

“We continue to value LSE on a standalone basis reflecting our view that the DB1 merger has only about a 50 percent chance of closing,” analysts at Credit Suisse said in a note. However, they also said LSE would still have a good business if the merger does not go ahead and have an outperform rating on its shares.

LSE said its income from its clearing business, LCH, surged by 29 percent in the third quarter from a year earlier to 114.9 million pounds, but would not disclose the French arm’s contribution.

Paris-based Euronext has begun talks with LSE to buy the French arm, LCH SA, according to sources familiar with the negotiations, after EU competition regulators raised a series of concerns about the merger with Deutsche Boerse.

LSE reports in sterling but earns much of its revenue in other major currencies, so gained from the British currency's 17.5 percent slide against the dollar GBP= since the Brexit vote.

Its total income in the third quarter rose 9 percent after stripping out currency effects, while revenue increased 9 percent.

The group’s capital markets division, which makes money from fees paid by companies listing on its markets and trading of stocks and bonds, saw revenue rise by 16 percent to 89.6 million pounds, with growth in both primary and secondary markets, it said.

LSE’s share price is up 22 percent since the deal with Deutsche Boerse was announced in February but analysts at Numis say regulatory concerns about the merger make the shares vulnerable.

“The shares have had a very strong run and are up with events... especially given the downside risks should a deal not eventually be completed,” they said in a research note.

Reporting by Noor Zainab Hussain in Bengaluru; Editing by Rachel Armstrong and Susan Fenton