ICAP (IAP) shares fell over 7 per cent after the interdealer broker reported a rather weaker half-year performance than analysts had been expecting. Low levels of market volatility have significantly depressed trading activity, and underlying operating profit fell a third year-on-year to £100m. Broker Numis Securities had been expecting nearer £130m.
Low forex-market volatility, low interest rates and bank deleveraging amid a tougher regulatory environment have all taken a toll. The unit covering electronic trading platforms saw profit fall by over a quarter to £41m, for instance, while profit from ICAP's global broking division fell two-thirds to £17m.
An uptick in volatility in September and October has improved market conditions. But, as Numis points out, it's "too early to tell whether these conditions will persist." In response, ICAP is cutting £100m of annual costs over the next two years, with £43m of savings due this financial year. The restructuring is focused on the global broking business.
Another worry is the ongoing investigations into ICAP’s role in various rate-rigging scandals: Libor in Europe the ISDAfix benchmark in the US. It's virtually impossible to quantify the financial implications of these probes for ICAP. There may be none at all, but Numis has factored a £200m contingency into its thinking.
Numis expects full-year EPS of 27.3p, down from 32.6p in 2014.
ICAP (IAP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 397p | MARKET VALUE: | £2.57bn | |
| TOUCH: | 396-397p | 12-MONTH HIGH: | 463p | LOW: 339p |
| DIVIDEND YIELD: | 5.5% | PE RATIO: | 23 | |
| NET ASSET VALUE: | 136p* | NET DEBT: | 22% | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 726 | 40 | 3.0 | 6.6 |
| 2014 | 620 | 36 | 4.5 | 6.6 |
| % change | -15 | -10 | +50 | - |
Ex-div: 8 Jan Payment: 6 Feb *Includes intangible assets of £1bn, or 157p a share | ||||
