Another name has been drawn into the Libor scandal after indications that a broker referred to by the Financial Services Authority (FSA) as ‘Broker C’ is inter-dealer broker
Shares in Tullett Prebon fell 9 per cent to 273p on the news, largely reflecting reputational damage and ongoing uncertainty about the outcome of the allegations. Numis Securities reckons that an estimated £52m held in cash will be more than enough to cover any possible FSA fine. But the news has come at a bad time for the broker as global economic weakness has sapped investor confidence and risk appetite. And while volume has picked up a little since the start of the year, the real catalyst to boost volume would be an increase in US interest rates, and that looks to be a distant prospect. Meanwhile, the uncertainty will gnaw away at investors’ confidence, while in the background there is the prospect of fresh legislation in the wake of the Libor controversy.
Numis is forecasting 2012 pre-tax profits of £114.4m, falling to £95.4m in 2013, with 2012 EPS of 40.1p slipping to 34.4p. This means that shares in Tullett are trading on 7 times 2012 earnings, rising to 8 for 2013. This is considerably less than its bigger rival ICAP, also caught up in the Libor-rigging scandal. But while Tullett’s longer-term prospects may look to be relatively bright, while the Libor scam continues to unfold, there is little to commend the shares, which should be viewed as a short-term sell.
Last IC view: Hold, 272p, 31 July 2012