ICAP too expensive for growth on offer

Technology spending on the electronic markets division has "peaked", management said, as bosses aim to maintain a free cash flow conversion rate of 80-90 per cent. Management has also set a target to increase trading operating profit margins to 40 per cent in the medium term, from 30 per cent in the year to March.

The group has already made progress on beefing up its post-trade division. During the reported period, it purchased the remaining 60 per cent stake it did not already own in Enso and a further 50 per cent share in Abide Financial. Revenue increased 6 per cent for the division at constant currencies to £113m; although this was primarily due to the decision to bill some information services to customers directly. This change also increased operating expenses.

Historically low interest rates, low levels of volatility and bank deleveraging reduced risk appetite for banking customers of its electronics markets business. Revenue was flat at constant currency rates. Within this, the electronic FX business EBS suffered as volatility generated by the prior period's central bank actions in G7 economies were not repeated. As a result, sales fell 10 per cent on a constant currency basis as trading volumes decreased.

Increased banking regulation also dampened trading volumes in the for-sale global broking business. However, last year's cost-saving programme and the benefits of a change in product mix meant trading profits increased more than a quarter to £55m.

Analysts at Numis expect adjusted pre-tax profits of £196m and EPS of 22.9p for the year to March 2017 (from £203m and 24.2p in FY2016).