FTSE in-depth: London bourse well on course

By This Is Money
Updated: 08:17 EDT, 14 May 2011

The London Stock Exchange unveiled a strong set of results yesterday and hopes the technical difficulties that have dogged the introduction of the new trading platforms it plans to sell around the world are behind it.

The 210-year-old bourse posted better than expected core operating profits up 22% at £341m on sales up 7% at £675m - but the LSE is a very different animal to what it was just five years ago.

Then more than half of the business came from share trading, now just under 13 per cent of its money is made from handling the stocks of Footise-listed firms.

Now the business has diversified into derivatives, fixed interest and other information services as it combats loss of its equities market share to leaner, cheaper rivals such as BATS Global Markets and Chi-X Europe.

Key to all of this is the updating of its technology as it seeks to battle smaller, leaner rivals.

Unfortunately, since it began to roll out its new technology last autumn, it has suffered delays and two technical glitches that have temporarily brought the system down. This has left traders sceptical about whether the LSE's systems are up to scratch.

Chief executive Xavier Rolet yesterday insisted its systems are working well and customers are satisfied. He added that the business has sold its new platforms to bourses in South Africa and Mongolia.

Traders say the smooth running of these systems, which the LSE plans to load with ever more services, are crucial to the continuing growth of the bourse. Shares were up 7% in early trading before closing 8.5p up at 827.5p.

The benchmark FTSE 100 ended the day down 19.09 points at 5925.87 after a slim recovery of hard-hit metal prices failed to restore confidence in the fragile global economic recovery.

Over on Wall street, the Dow Jones Industrial Average dipped 117.12 points in early trading to 12,580.95.

Whitbread was a strong riser in London for the second day in a row after a Royal Bank of Scotland note which made the case for spinning off coffee chain Costa. Talk about floating the successful chain crops up periodically but the RBS note pointed out that now would be a good time because Costa 'is capable of paying a dividend and could carry some £100m of debt'.

The broker adds that the market for valuations has 'markedly improved' over the last two years. Costa is set to hold an investor presentation next week and is expected to give an update on its plans for expansion into Eastern Europe and China. The stock rose 35p to £16.68.

Shares in trucking company Stobart Group slumped 7.7p to 128p after it was forced to deny newspaper reports that the Financial Services Authority was looking into a deal, which will see the firm buy land from chief executive Andrew Tinkler.

The firm added: 'The company and its directors have not been contacted by any of the authorities referred to and is confident that there is no inquiry.'

Ashley House, which builds NHS surgeries and medical centres, said it would be hit by the Coalition government's plans to slow the pace of the country's NHS reforms.

Its shares fell 4p to 15p after it said its fullyear profit would be £1.1m less than expected.

The business said the government's pause in reforms, which plans to put £60bn of NHS spending in the hands of doctors by 2013, had led to 'uncertainty' which has 'created difficulties for our NHS clients to progress and to close projects'. Rentokil, saw its stock rise 3.8p to 100.9p yesterday when Credit Suisse raised its rating on the Royal ratcatcher from 'underperform' to 'neutral'. The broker lifted its target price on the firm from 86p to 100p, and said new contract wins would boost profits and offset downward pressure on margins.

Autonomy, the IT software business saw, its shares jump 25p to £17.34 after posting better than expected quarter earnings up 13% to $95m.

Boss Mike Lynch said the firm was in a period of 'gentle sustained recovery'. Intel and IBM both said this week they were benefitting from a rebound in IT spending.

Retailers were hit by a dip in trading after high street bellwether John Lewis saw its overall sales slump 1.4% in the week to May 7 compared to the same period last year, despite an increase in fashion sales as it said people copied Royal Wedding styles.

Marks & Spencer slid 3.8p to 398.40p, while Next fell 41p to £22.81.