The stock market may have ‘lingering doubts’ about the London Stock Exchange (LSE) takeover of financial data provider Refinitiv but fund manager Nick Train says the rationale for the deal is looking ‘ever more compelling’.

LSE is the third largest holding in Train’s Finsbury Growth & Income (FGT ), making up 10.2% of the £1.8bn investment trust – the second-largest in its UK equity income sector. The UK stock exchange and data group has been under scrutiny after it bought the analytics giant Refinitiv from Thomson Reuters at the start of 2021, and despite shares soaring 21% last month, they are still 12% down year-to-date.

Train, who also holds LSE in his £5.2bn open-ended Lindsell Train UK Equity fund, said the optimism in the shares during March ‘does not represent a complete recovery’ in the stock and the overall decline is the result of ‘what were perceived as unexpectedly high costs of integration’ of Refinitiv.

‘To our mind, however, the rationale for the deal is looking ever more compelling,’ said Train, who added that the publication of its full-year 2021 results show ‘the enormous strategic potential of the combined group as the world’s number two provider of data and analytics to the global financial sector’.

He added that it is also the number one provider of clearing in interest rates and foreign exchange, as well as a more than 50% owner of Nasdaq-listed Tradeweb Markets, which is a platform for trading interest rates, exchange-traded funds (ETFs), equities and money markets.

The results revealed 6% revenue growth across all divisions and showed the group was on course to hit its targeted 5-7% growth per year between 2020 and 2023. Train said ‘drilling down further…highlights more causes for optimism’ as data and analytics saw revenue growth accelerate from 2.5% in 2020 to 5.5% in 2021. This division accounts for 70% of group revenues post-Refinitiv versus 30% in the ‘old LSE’, he said.

‘The division’s increase in size also reflects a step upwards in quality as over 90% of revenues are recurring, propelled by sticky data products which form essential parts of its customers’ workflows,’ said Train (pictured).

Despite the encouraging results and prospects for LSE, Train said ‘the continued weakness in the share price points to lingering doubts about the cost and complexity of such a large acquisition’.

However, meetings with the management team at LSE left no doubts for Train, who said chief executive David Schwimmer ‘pointed out that the global capabilities of the combined business across asset classes and the increasing ability to combine data from various segments are unparalleled in the industry’.

‘The competitive positioning allows LSE to not only generate a plethora of products and services to serve new and existing customers, but – perhaps most importantly – fundamentally makes clients’ businesses simpler and less costly. A powerful proposition,’ said Train.

He also noted the prospects in the ever-important area of environment, social, and governance (ESG), where demand for data ‘increases apace’.

While he does not ‘seek dividend increases simply for the sake of them’, Train said he received the 27% increase in the full-year dividend ‘with enthusiasm’ and said it was a ‘signal of confidence in the ongoing Refinitiv integration process, as well as a reflection of management’s belief in the combined business’ unique competitive positioning and potential for substantial future growth’.

As opportunities develop, Train said LSE would open up the possibility of share buybacks. This is something the trust has had to resort to in the past six months as investors have begun to drift away from Train’s quality growth approach in the resurgence of value investing. This has left the stock languishing 7% below net asset value, the widest discount in a decade, according to a chart on the Hargreaves Lansdown website.

As a result while the trust’s net asset value has edged 0.5% lower over one year, the shares have fallen 8.1%, one of the worst performances in its sector as investors have begun to drift from Train’s quality growth approach in response to the resurgence in ‘value’ stocks. By contrast, the FTSE All-Share index has risen 9.1%.

Long-term performance remains impressive, however, with a total shareholder gain of 193% over 10 years that is almost double the All-Share. However, the trust no longer leads its peer group over that period, with rivals such as Diverse Income (DIVI ) and Law Debenture (LWDB ) overtaking it with 201% and 202% total returns.