TP Icap's clouds lift

That final development led Moody’s to push TP’s credit rating further into ‘junk’ status. Although the ratings agency later withdrew its report amid a public row, a £65m non-cash charge booked alongside full-year results for 2018 showed that shareholder equity – if perhaps not the financial position – had deteriorated. The company's shares, hovering at their already discounted book value (or just 10 times analysts' forward earnings forecast) suggested that the stock market saw TP as damaged goods, heading for another profit warning.

But a warning hasn’t happened, and with integration finally about to complete, we think the shares offer some value. That’s despite a strong rally since last summer, in part sparked by a rebound in trading momentum, and the payment of a £15.4m penalty to settle a series of charges brought by the Financial Conduct Authority (FCA).

And while chief executive Nicolas Breteau ruled out big deals – understandable, perhaps, given the recent track record – bolt-on acquisitions were one of the reasons for an 8 per cent rise in turnover in the energy and commodities division in the first half of 2019. At the same time, investments in data analytics – a noted trend among financial intermediaries – helped to cement TP’s position as the leading provider of over-the-counter pricing data globally.

TP’s last trading update was even more encouraging. In the three months to September, group revenues came to £478m, a rise of 17 per cent on the prior year period, or 13 per cent in constant currencies. That reflected a pick-up in the core broking and commodity trading divisions. Although management downplayed that performance – sticking to full-year guidance of "low single-digit revenue growth" – revenue streams appear more diversified, and thus less susceptible to the effects of geopolitical uncertainty on broking activities.

Importantly, that trading update made no changes to the group’s annual cost synergy target, which was expected to hit £75m at the end of 2019. The impact of Brexit, which was previously hard to pin down, also now looks to have been contained. Although 90 per cent of the group’s broking revenues are unaffected, European branches are now incorporated and fully authorised in the event of a hard Brexit, while plans to relocate the electronic rates trading facility to Amsterdam are under way.

Other sources of uncertainty have started to look like reasons for confidence. The £15m invested in hybrid and electronic trading products last year is expected to boost earnings in 2020. Meanwhile, an expensive incentive scheme for senior managers has been reined in, and overall broker compensation is forecast to be stable at around 52.5 per cent of broking revenue when 2019 results land on 11 March.

Reassurance that this momentum can continue could prompt a reassessment of the share's low valuation. And fortunately 2020 appears to be off to a strong start. As a leading intermediary in energy markets, the recent volatility in the Middle East should have benefited revenues, while the acquisition of private brokerage Louis Capital has already led to small forecast earnings upgrades. Further consolidation in the competitive, but highly fragmented, inter-dealer industry represents another potential source of upgrades.