Canaccord downgrades TP Icap, says purchase of Liquidnet would be earnings dilutive

Analysts at Cannacord Genuity downgraded their recommendation and target price for shares of broker dealer TP Icap after the firm disclosed that it was in "advanced discussions" to acquire non-listed Liquidnet Holdings.

According to the Canadian broker, the proposed purchase for $600-700m - including an upfront payment of $550m - valued the takeover target at 12 times' its trailing earnings before interest, taxes, depreciation and amortisation to June 2020.

Furthermore, given the absence of forecasts for Liquidnet, Canaccord plugged in its own assumptions and reached the conclusion that TP Icap's claim that the transaction would be neutral for earnings per share in year two was off.

For that to be true, they estimated that Liquidnet would need to nearly double its EBITDA.

Instead, Canaccord judged that the purchase would be 12% earnings dilutive, leading it to lower its earnings per share estimates for TP Icap for 2021 and 2022 to 33.9p and 34.4p, respectively.

Hence, analysts Justin Bates and Portia Patel downgraded their recommendation for the company's shares from 'buy' to 'hold' and slashed their target price from 401.0p to 275.0p.