Elliott’s best bet at LSEG: shout the obvious through a megaphone

Activist investors get no points for originality. The very best campaigns target companies that everyone thinks are undervalued — except, presumably, the marginal investor in the market — and require little in the way of strategic change. The £37bn owner of the London Stock Exchange fits this bill neatly.

Elliott Management has built up a stake in LSEG, which is best thought of as a large provider of data and analytics services. Those make up over 60 per cent of its revenue, while the rest comes from a capital markets business which includes the LSE and a big stake in US-listed Tradeweb. It was a poorly understood and poorly valued collection of assets even before the recent AI-ignited sell-off in data stocks; LSEG shares have fallen 15 per cent year to date.

But it’s not as though Elliott has noticed something everybody else missed. On average, sell-side analysts — all buyers, according to LSEG’s own data — reckon the stock should be more than 60 per cent higher than its current price. Jefferies analysts calculate that, even if one zeroed out the value of businesses vulnerable to AI disruption, such as desktop analytics service Workspace and its Risk Intelligence database, LSEG would still be worth about a fifth more than it is today on a sum-of-the-remaining-parts basis.

And that may well be too pessimistic a scenario. It is hard, for instance, to imagine AI affecting the revenue LSEG makes from stock trading and listings. And a lot of the data that it peddles is proprietary, distributed through its own physical network. There is a case to be made that the company will be a net winner from AI — getting paid to train large language models — rather than a loser.

Given all that, what should LSEG do to get its market value up? This is no turnaround story in the traditional sense. The group’s business appears to be on the right track: analysts expect revenue growth above 8 per cent this year, on S&P Capital IQ estimates, and LSEG upped its guidance on margins when it announced third-quarter results. A keen cost-reduction programme would not go amiss, given LSEG is still less profitable than rivals such as S&P Global.

The real question, instead, is why the stock is not already higher. There, the company might be able to help itself a little. Elliott may encourage the company to buy back more of its own stock, according to people familiar with the situation, which as well as creating value, is a way for management teams to signal they think their shares are cheap. It may well be pushing at a semi-open door: LSEG has spent around £2bn on buybacks over the past year and expects to have less debt by the end of this year, relative to the size of its profit, than it had previously indicated.

If Elliott’s campaign succeeds on this basis, it will demonstrate that the activist’s job is not always to come up with a spanking new plan. Sometimes, merely showing up on the shareholder register, in the hope that investors are prodded into rethinking the company’s prospects, is all it takes to make a handy profit.

camilla.palladino@ft.com