Tullett Prebon tumbles as Barclays downgrades on valuation

Shares in Tullett Prebon fell sharply after Barclays downgraded the stock to ‘underweight’ from ‘equalweight’ and slashed the price target to 310p from 385p on valuation concerns.

The bank pointed to a deteriorating volume outlook for inter-dealer broker markets in 2015 and a relative lack of progress on electronic/post-trade services expansion.

It noted the stock has strongly outperformed year to date, up 22% versus the FTSE All Shares which is down 1%.

It said there have been upwards earnings per share revisions but only from January to April. Since then, energy volumes – to which the new CEO's strategy appears heavily geared – have weakened.

Barclays said this has resulted in the share trading at 10-11x 2016E price-to-earnings, which is a significant premium to its through-the-cycle average of around 8.5x.

In addition, it said believe volumes have stalled in fixed income, currencies and commodities areas outside of commodities and as a result, the group needs to take further action on costs.

“Instead the group’s new ‘10 arrows’ strategy focuses far more on revenue growth,” it said.

At 1220 GMT, Tullett shares were down 7% at 327.70p.