Hidden Gem: The Undervalued Financial Data Ecosystem Stock

The London Stock Exchange Group (LSEG) is no longer the primary stock exchange in most investors' minds. However, before disregarding the company, it's crucial to note that it currently generates more revenue from financial data services than its stock exchange business.

In the fiscal year 2022, LSEG achieved £5.26 billion in sales from financial data services, accounting for 68% of its total revenue. The stock exchange business, which includes capital markets and post-trade services, contributed the remaining 32% or £2.45 billion in revenue.

Referring to it solely as a stock exchange is no longer accurate. Unlike other stock exchanges, which usually derive less than 50% of their revenue from data services, LSEG's financial data segment has become a substantial part of its income. Perhaps a more appropriate name would be FTSE Refinitiv, which better reflects the significant contribution of its financial data services.

I believe that the vitality of a stock exchange is closely tied to a country's economic activity. A thriving economy fosters dynamic companies that, in turn, make their stocks highly desirable when listed on the exchange.

In the past, the UK held a prominent position as a global superpower, and London was a prestigious business hub. Those were the heydays; however, the UK's economy is no longer as dynamic as it once was. Consequently, relying solely on its stock exchange business would not bode well for LSEG. It makes logical sense for the company to pivot towards data services, especially when its stock exchange business is not experiencing the same rapid growth as before and has lost some of its prominence.

The data business receives significant support from two major financial data brands. The first one is Refinitiv, formerly unit under Thomson Reuters. In 2021, LSEG acquired and renamed the financial data unit as Refinitiv.