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1 November 2019

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TP ICAP – Q3 Update 

Share price 343p

Mkt cap £1,931m

Conflict Disclosure: No Holding

  • Update Market conditions have been good in Q3. Rebenue was up 17% year on year which means year to date revenue is now up 6%. Global broking (70% of revenue) was up 10% in Q3 while energy and commodities was up 24%. The growth areas of institutional services and data & analytics, which now account for 10% of revenue were up 38% and 9% respectively.
  • Estimates Despite this strong Q3 the guidance of low single digit revenue growth remains unchanged as the company highlights “geopolitical uncertainties”. Forecasts assume 1% revenue growth. Looks like we can expect the company to be pulling a rabbit out of the hat in a January pre close statement.
  • Valuation The PER is 11.2X 4.5X and yield 5%
  • Conclusion  With a relatively new CEO and having settled an FCA fine of £15m while the integration has taken longer and cost more than hoped it is understandable that the company now wants to keep expectations low. That is a good place to be. Meanwhile the growth businesses are slowly becoming a larger proportion of the business. This is a time when value stocks are starting to outperform bubble stocks and this business could be at the beginning of a 3 year outperformance cycle.

6 August 2019

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TP ICAP – H1 Results 

Share Price 282p

Mkt Cap £1.56bn

Conflict Disclosure: No Holding

  • Results Revenue up 1.3% to £922m. Operating profit up 1.9% to £158m. Margin ticks up from 17% to 17.1%. PBT down 3.6% to £134m and EPS 19.2p. Global Broking was down 6% while the growth businesses of Institutional Services and Data & Analytics aren’t yet big enough to move the needle. Net debt is modest at £80m.  The statement confirms that another £75m of integration savings will be achieved in H2 and the outlook says they are “deep into the process of designing a strategy and so they are confident.
  • Estimates H2 profit estimates are currently lower than H1 which suggests scope to increase FY estimates
  • Valuation FY 19 PER 9.3X yield 6%
  • Conclusion If there was an award for the most boring set of results TP ICAP would be a strong contender. And in current markets boring looks strangely attractive.

15 May 2019

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TP ICAP – Trading Update

Share Price 274p

Mkt Cap £1.55m

Disclosure: No holding

  • Update Revenue of £469m was up 1% but in constant currency down 2%.  Global broking which is 71% of revenue was down 6% while the higher growth divisions of Institutional Services and Data were up 33% and 11% respectively. The problem is they are still small contibutors to the overall revenues .
  • Estimates Q1 revenues are 26% of full year so looks in line.
  • Valuation PER 8.5X yield 6.3%
  • Conclusion  This looks a bit like a value trap as its too early to place a lot of value on the growth areas.

19 March 2019

TP ICAP – FY Results 

Share Price 303p

Mkt Cap £1710m

  • Results  Revenue a little better than flat at £1.76bn. PBT up 5% to £245m and EPS up 3% to 34.2p. Integration cost savings (revised previously) are on track with £71m cost savings achieved to date. Outlook is confident with a renewed strategy founded on four strategic pillars and a sense of purpose. Net tangible assets are £236m and debt outstanding is £624m although most of this is due in 2024.
  • Estimates These results are in line. Going forward 3% revenue growth is assumed which looks in line
  • Valuation PER 9.7X yield 5.7%
  • Conclusion  This company is cheap in valuation terms. I just struggle to understand why to own it. There is revenue growth in a couple of the new divisions such as institutional services and data and analytics but they are too small to move the dial materially. I can’t see it becoming a large company and there remains integration risk under a new CEO.  I will pass quietly by on the other side of the road.

17 December 2018

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TP ICAP – Press comment 

Share Price 300p

Mkt Cap £1.69bn

  • Comment – It seems the TP ICAP have launched a legal action against Nex for promises made to staff that were allegedly at odds with the contractual position of staff at the time of the acquisition of ICAP’s voice broking business in 2016. The Sunday Times article notes that the share price of TP ICAP has fallen 44% this year following the ousting of the CEO last July on a profit warning and more recently the Chairman standing down as of March.
  • Estimates – Consensus forecasts have moved down from 40.9p to 33.1p this year.  Of the 6 analysts maintaining forecasts on this stock none are sellers. 3 have a “Strong Buy”, 2 a “Buy” rating and there is 1 “Hold”. The dividend is 16.9p for the current year to Dec 18 which is almost 2X covered and the company is expected to have net cash of c.£63m at the year end.
  • Valuation – On current earnings the PER is 9.1X and the yield is 5.6%
  • Conclusion – These businesses are difficult to manage and require a firm focus on the needs of investors while relishing challenges with a lack of emotion. It appears that the pre merger management team of Terry SmithCEO, Paul Mainwaring CFO, Stephen Duckworth COO, Angus Wink CEO Europe, and Simon Clark Head of Legal have now all gone.  While the analysts are positive I suspect the earnings could continue in a downgrade trend until new management are appointed.

2 November 2018

TPICAP – Trading Statement and Acquisition 

Share Price 288o

Mkt Cap £1.6bn

·         News Revenue in 4 months to October was up 1% to £568m and over the 10 months to October is 1% lower at £1.478bn but at constant exchange rates was 3% higher.  Data and Analystics grew 11% and 7% year to date and Institutional Services grew 7% year to date which accelerated to 7% in the last 4 months. Results are expected to be “in line”. They also announce the acquisition of Atlas, a US energy and commodities brokerage firm for $18.2m which is 3.4X the PBT of $5.3m it produced in December 2017.

·         Estimates  Modest revenue growth is expected over the next two years. PBT in Dec 19 is expected to be £223m which gives EPS of 31.6p and the dividend 17.4p

·         Valuation PER 9.1X and yield 6%. They have just acquired Atlas at the bargain valuation of 3.4X PBT.

·         Conclusion  If they can keep acquiring at 3.4X PBT then there is potential for a roll up but that seems an unlikely outcome. The growth from the analytics side will take a while to achieve enough scale to move the dial but this could be OK for the patient investor. But I can’t help wondering why a vendor would sell at 3.4X.

10 July 2018

TP ICAP – Trading Update  

Share Price 420p

Mkt Cap £2.37bn

·         Update  2% reduction is revenue for 6 months to June is reported as “consistent” with the guidance given in March. Synergy savings on the Tullett/ICAP vice broking merger are on track at £65m but the final target for synergies has been reduced from £100m to £75m. Bexit, Mifid 2, regulatory and legal costs as well as IT security get blamed for a new £10m of cost headwinds.. Market forces get blamed for increased broker compensationof 0.5% of revenue. And the CEO is leaving “with immediate effect”.

·         Valuation PER is 17 and yield 3.6% although earnings will be a little lower than consensus.

·         Conclusion  When Theresa May has her bad days she can console herself that she isn’t a voice broking IDB.  Its hard to see any catalyst for this one.  Only Tradition could come to the rescue but that would be a reverse so the shares will get a lot cheaper over the coming months.