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Defections dent profits at Tullett Prebon

RESULT: But income outside fixed-income, trading holds up well
August 2, 2010

An otherwise decent first-half performance from the world's second-largest inter-dealer broker Tullett Prebon was marred by the effects of an earlier defection by 77 brokers to rival US firm BGC, which reduced revenue by 7 per cent.

IC TIP: Hold at 350p

So while income from Treasury products, interest rates derivatives, equity derivatives and other activities increased, the group's fixed income operation - which is where the defections took place - saw income fall 28 per cent to £132.7m. Broker headcount on the affected trading desks is currently around half the level before the defections. Tullett has launched a legal case for substantial damages against BGC, and the case is due to be heard in March next year.

Overall trading conditions in the first half were up against some stiff comparatives because volatility levels a year earlier were still higher than normal in the wake of the Lehman Brothers collapse. And while activity picked up in May, there was a slip back in June. Trading in over-the-counter (OTC) products in Europe accounted for the lion's share of group profits.

Numis Securities is forecasting full-year pre-tax profits of £134m and EPS of 42.2p (from £156m and 51.8p in 2009), recovering to £147m and 45.8p, respectively, in 2011.

TULLETT PREBON (TLPR)
ORD PRICE:350pMARKET VALUE:£754m
TOUCH:347-350p12-MONTH HIGH:437pLOW: 261p
DIVIDEND YIELD:4.4%PE RATIO:7
NET ASSET VALUE:165p*NET CASH:£7.2m

Half-year to 30 JunTurnover (£m)Pretax profit (£m)Earnings per share (p)Net div per share (p)
200951891.728.15.00
201047679.325.75.25
% change-8-14-9+5

Ex-div:27 Oct

Payment:18 Nov

*Includes intangible assets of £388m, or 180p a share

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