Bank of America ML upgrades ICAP to 'buy' on valuation

Bank of America Merrill Lynch upgraded ICAP to ‘buy’ from ‘neutral’ with an unchanged price target of 500p, saying the stock’s recent underperformance has added valuation appeal to a compelling strategy.

It noted ICAP shares have dropped 19% this year, which is around 18% more than the All Share and attributed much of the weakness to macro/referendum concerns.

The bank said it continues to see ICAP as well placed, especially post the NEX separation. NEX is the company which will endure once ICAP sells the bulk of its voice assets to Tullett Prebon.

“We have supported the company’s separation of its voice broking from the electronic assets (NEX Group), and believe that these businesses should have a vibrant future,” BofA said.

It said that while there is no visibility about the regulatory environment if the UK were to vote to leave Europe, ICAP should be able to cope under such scenarios.

In addition, it pointed out that ICAP is structurally short sterling, so should optically benefit from a weak sterling post a leave vote scenario.

“We haven’t changed our fundamental views, estimates or price objective on ICAP. All that has changed is the market’s valuation of the stock.

“We understand that the UK referendum vote will generate investor uncertainty, but to the extent anyone can predict the consequences of a UK leave scenario, we think these would be pretty modest for ICAP. We have therefore upgraded the stock.”

At 0830 BST, ICAP shares were up 2.3% to 424.05p.