Numis reiterates 'buy' on ICAP

Numis reiterated a ‘buy’ rating and target price of 500p on ICAP after the company announced that China Foreign Exchange Trade System has chosen it to deliver the underlying technology for fixed income and foreign exchange electronic execution services in mainland China

The FTSE 250 firm said CFETS - China’s official interbank market trading platform and infrastructure provider - has been planning its so-called Next-Generation Trading System for a number of years.

It said ICAP was chosen to cooperate with CFETS on the core trading components of the system, which will enhance its capability to offer central limit order book and disclosed trading models for FX spot, forwards and swaps and a disclosed trading model for cash bonds to the onshore renminbi market, through a localised EBS BrokerTec graphical user interface.

The deal, valued at $65m over a three-year period, will be delivered by ICAP division EBS BrokerTec, and will see the company expand into China with EBS opening a local office and development centre in Shanghai.

“We do not expect to change our numbers at this stage, but believe it should help provide some valuable support to near-term consensus estimates,” Numis said.

“ In our view, this represents a favourable endorsement of ICAP’s infrastructure and services and should help justify a valuation multiple (calendar year 2017 estimated value/net operating profit after tax 13.3x) that is closer to other financial infrastructure companies (18.5x).

Numis added: “We believe ICAP is ideally positioned to capitalise on the ongoing trends towards electronic trading and central clearing that are being driven by regulatory changes. This is unlikely to go unnoticed by other financial infrastructure companies in our view and we would not be surprised if it became an acquisition target once the sale of the hybrid voice broking division completes.”

Shares rose 2.67% to 426.70p at 1047 BST.