London shares still lag North America

The price gap has been consistent - about 15 to 20 per cent once foreign exchange rates are factored in - and no one is quite sure why, it said.

In a note to clients yesterday, USB analyst Jeffrey Fan reiterated his previous view that the spread is likely to remain into next year.

He believes that differing views of Canadian and European investors on the prospects for the London shares is part of the reason for the gap.

North Americans are more likely to focus on strengths in the Thomson Reuters division that sells specialised legal and scientific data, while Europeans look to risks in the company's business that sells data and equipment to the troubled financial services industry, he said.

At the Thomson Reuters annual meeting in May, chief financial officer Robert Daleo would not speculate about the London discount, Financial Post said.

He only alluded to a significant short position in the North American shares that would take some time to unwind. Short sellers borrow and then sell shares in a company. They want the stock to drop in price so when it is time to return the shares they can buy them back at a cheaper price and pocket the difference.

Fan said the short position in the London shares remains high, at 13.5 per cent, but lower than the 20 per cent figure of last month.

“Observers say it is anyone's guess as to when the gap will narrow. One analyst yesterday compared the situation to a war of attrition,” Financial Post said.

Fan noted that Thomson Reuters vice-chairman Geoffrey Beattie recently sold 40,000 of the North American shares and bought the equivalent of 66,600 shares in London.

The analyst maintains his "sell" rating as he believes a gloomy outlook for global financial services adds risk to the consensus earnings estimates. ■