Regulation will remain a headache for the financial services sector in 2019 – Brexit-related or otherwise. London Stock Exchange Group’s (LSE) LCH clearing business may have been granted a reprieve after the EU issued a 12-month grace period for European derivatives traders to continue using clearing houses after a potential no-deal Brexit, but beyond that access rights are still uncertain. What’s more, a further downturn in equity markets could dent the IPO and secondary fundraising markets, although the group is becoming less reliant on capital markets business.
Elsewhere, some groups are grappling with the Financial Conduct Authority (FCA) tightening rules around the services they market and sell. Provident Financial (PFG) expects new rules on affordability testing for credit card users to lead to a slowdown in receivables growth this year for Vanquis Bank, which accounted for 60 per cent of revenue during the first half of 2018 and which has already been hamstrung by rising bad debts.
The long-term effects of reforms to the contracts for difference (CFD) market are unclear, but IG Group (IGG) and Plus500 (PLUS) both expect a decline in revenue this year, as clients choosing to be classed as ‘professional’ are not yet offsetting the loss in business from retail investors within the EU. The market seems doubtful that Plus500 – which has a high customer churn rate – will be able to continue its run of profit upgrades against the tighter regulatory backdrop. Despite rising sharply in the past year, the stock is now one of the most heavily shorted on the London exchange.
If there is one company in the sector that thrives on regulatory changes and complexity, it is Sanne Group (SNN). Although its shares and margins have slipped of late, the compliance specialist has already reported an uptick in business in Luxembourg and Dublin from businesses looking to hedge against the outcome of Brexit negotiations.
Name | Price (p) | Market cap (£m) | 12-month change (%) | Trailing PE | Forward PE | Dividend Yield (%) | Last IC View |
3I | 817 | 7949.14 | -14 | 6.5 | 6.8 | 3.67 | Hold, 797.8p, 15 Nov 2018 |
Amigo Holdings | 259.95 | 1235.63 | 12.2 | 10.5 | 0 | Hold, 265p, 27 Nov 2018 | |
Charter Court | 276.6 | 661.96 | -5.27 | 6.3 | 5.9 | 0 | Buy, 298p, 14 Nov 2018 |
Funding Circle | 341.4 | 1181.36 | 0 | Sell, 312p,10 Jan 2019 | |||
IG Group | 624.5 | 2303.43 | -17.45 | 12.4 | 12 | 6.92 | Hold, 862p, 25 Jul 2018 |
Investec | 483.6 | 3298.74 | -10.28 | 8.8 | 8.5 | 5.07 | Hold, 489p, 16 Nov 2018 |
IP Group | 109.2 | 1156.59 | -19.11 | 10.2 | 0 | Buy, 126p, 25 Jul 2018 | |
London Stock Exchange | 4404 | 15333.37 | 19.38 | 26.1 | 22.6 | 1.24 | Buy, 4,040p, 3 Jan 2019 |
Plus500 | 1529 | 1738.43 | 47.59 | 6.1 | 8.4 | 11.22 | Hold, 1,525p, 20 Sep 2018 |
Provident Financial | 535 | 1355.07 | 4.61 | 10.7 | 9.5 | 0 | Hold, 521p, 16 Jan 2019 |
Sanne Group | 543 | 792.23 | -27.11 | 21.1 | 18.1 | 2.39 | Hold, 604p, 11 Sep 2018 |
TP Icap | 318.4 | 1793.66 | -40.51 | 9.6 | 10.1 | 5.29 | Hold, 290p, 10 Aug 2018 |