LSEG raises outlook as flags attractions of USD3.54 billion Octus deal

London Stock Exchange Group PLC on Thursday lifted its annual guidance and confirmed a deal to acquire Octus for USD3.54 billion, "creating a leading proposition" in credit and private market data.

In response, shares in the London-based exchange operator and provider of market data rose 3.1% to 9,062.00 pence each in London on Thursday morning.

LSEG said gross profit improved 9.5% on-year to £2.21 billion in the quarter ended September 30 from £2.02 billion.

Total income including recoveries climbed 8.4% to £2.50 billion from £2.31 billion, a touch above company compiled consensus of £2.48 billion.

Excluding recoveries, total income climbed 8.5% to £2.41 billion on-year, and was 8.8% higher on an organic, constant currency basis, the FTSE 100 listing said. This was also slightly ahead of company compiled consensus of £2.39 billion.

Data & Analytics and FTSE Russell were in line with consensus, Risk Intelligence 1% above, and Markets 2% above.

Organic growth in total income excluding recoveries picked up from 7.1% in the second quarter, but was slower than the 9.8% advance made in the first three months of the year. For the whole of the year-to-date, it has risen 8.4%.

"LSEG's record performance continued in Q3, with accelerating growth across our subscription businesses and sustained performance in Markets," Chief Executive David Schwimmer said.

The CEO said LSEG is on track to deliver its strongest annual growth since 2018 and said the firm has the capacity for a further £1.0 billion to £1.5 billion of share buybacks in 2027.

"We repurchased £500 million of LSEG shares in Q3, taking our cumulative buybacks so far this year to £2.6 billion. Under our current programme we expect to repurchase a further £800 million in Q4 and Q1 2027, concluding by February 2027, with the final tranche expected to start in the coming weeks," the firm noted.

Reflecting the strong trading, LSEG lifted its annual guidance, now seeing organic constant currency growth in total income excluding recoveries of at least 8.0%. It previously saw growth between 7.0% and 7.5%.

It sees now an earnings before interest, tax, depreciation and amortisation margin expansion between 100 and 120 basis points, its view upped from 100 basis points.

Equity free cash flow of at least £2.8 billion is now forecast, up from previous guidance of £2.7 billion.

In addition, LSEG announced the USD3.54 billion acquisition of Octus from funds advised by Permira, and Octus management, including its founder, Kent Collier. LSEG had confirmed talks for a deal earlier this month.

"The acquisition of Octus will transform LSEG's presence in credit and private market data, creating a leading proposition in these high-growth areas," LSEG said.

Founded in 2013, New York-based Octus is a provider of credit solutions across intelligence, data and analytics, serving customers across private, illiquid and distressed credit.

In 2026 Octus is expected to generate over USD300 million in revenue, with strong double-digit growth and an adjusted earnings before interest, tax, depreciation and amortisation margin of around 40%. It has achieved double-digit compound growth in revenue since 2022.

LSEG said the Octus' product set and customer coverage are "highly complementary" to its existing fixed income products.

"The transaction will unlock attractive synergies, both immediate and longer term, as LSEG builds differentiated solutions for customers," LSEG said.

On completion, Octus will be part of LSEG's Data & Analytics division.

The transaction is expected to be immediately accretive to LSEG's Data & Analytics organic revenue growth, and additive to LSEG's guidance for group organic subscription revenue growth of around 7% in 2027.

The transaction will be neutral to adjusted EPS in the first full year after completion, and accretive thereafter. The acquisition will be financed by external debt.

Allowing for forecast cash flow, the completion of the current £3 billion share buyback programme by February 2027, the completions of the Octus and Trumid acquisitions, and capacity for further share buybacks of £1 billion to £1.5 billion, LSEG expects leverage at the end of 2027 to be around the upper end of the target range of 1.5 times to 2.5x, before returning to the middle of the range by the end of 2028.

The transaction is expected to close in the first half of 2027, subject to regulatory approval.

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