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ICAP facing uncertainty

RESULTS: ICAP delivered a lacklustre first-half performance and the second half holds little promise - throw in the prospect of more regulatory fines and the shares should be avoided
November 13, 2013

ICAP's (IAP) shares rose 6 per cent on the back of these half-year results, reflecting something of a relief rally after the inter dealer-broker pushed adjusted operating profit up 6 per cent to £153m. However, this was before regulatory fines and legal fees swallowed up £68m.

IC TIP: Sell at 399p

There might be more bad news to come, too. That's because no provision has been made for ongoing investigations into alleged irregularities in setting Libor and other rates - three former ICAP employees were charged with wrongdoing by the US Department of Justice in September. ICAP reckons that it's impractical to try and predict the outcome of these and other investigations, as well as the scale of any future fines.

The trading performance provided little respite, either, with turnover and adjusted pre-tax profit broadly flat. Increased volatility in US Treasury and interest rate derivatives did provide a boost, but this was offset by a much more subdued picture in euro markets. This left operating profits from the electronic trading business ahead by just 4 per cent at £55m, although the operating margin here was held at 39 per cent.

Broker Numis Securities expects to reduce its current full-year pre-tax profit forecast of £296.5m, giving EPS of 33.8p (2013: £276m/31.7p).

ICAP (IAP)
ORD PRICE:399pMARKET VALUE:£2.58bn
TOUCH:398-400p12-MONTH HIGH:426pLOW: 273p
DIVIDEND YIELD:5.5%PE RATIO:210
NET ASSET VALUE:145p*NET DEBT:9%

Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201274668.07.806.60
201373640.03.006.60
% change-1-41-62-

Ex-div: 31 Dec

Payment: 7 Feb

*Includes intangible assets of £1.08bn, or 167p a share