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Icap hit by perfect storm

RESULTS: Economic weakness, eurozone worries, the US fiscal cliff and a raft of new regulations combine to chase customers away from the market.
November 14, 2012

Shares in the world's largest inter-dealer broker Icap (IAP) fell 6 per cent to their lowest level since April 2009, after reported profits more than halved in the six months to September. Even after adding back exceptional items, including acquisition and disposal costs, adjusted pre-tax profits were still down 26 per cent to £137m. Chief executive Michael Spencer said this was one of the toughest trading periods he had ever seen, and we tend to agree, leaving no room for a re-rating anytime soon.

IC TIP: Sell at 291p

Trading volume was hit across all asset classes as a combination of economic weakness, the eurozone crisis, banks recapitalising and deleveraging created a toxic mix that confined many customers to the sidelines. And with a tidal wave of regulatory reforms likely to maintain downward pressure on volumes, Icap has sensibly taken steps to reduce its cost base, that will deliver savings of £50m in the current financial year and annualised savings of £60m thereafter.

On the voice broking side, operating profits plunged 43 per cent to £48m on revenue down 16 per cent to £510m, and there was a similar drop off in business in the more lucrative electronic broking operation, which led to a 22 per cent fall in profits to £53m.

Analysts at Numis Securities expect to cut their full-year pre-tax profit and EPS estimates of £312m and 34.6p, by 4-6 per cent (from £354m and 39.9p in 2012).

ICAP (IAP)
ORD PRICE:291pMARKET VALUE:£1.88bn
TOUCH:291-292p12-MONTH HIGH:432pLOW: 284p
DIVIDEND YIELD:7.8%PE RATIO:22
NET ASSET VALUE:170p*NET DEBT:14%

Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201186715115.46.0
2012746687.86.6
% change-14-55-49+10

Ex-div: 2 Jan

Payment: 8 Feb

*Includes intangible assets of £1.22bn, or 188p a share