Icap revenues rescued by weak pound as Trump win boosts trading

Electronic markets, inter-dealer broking and information provider Icap generated flat underlying revenues in the first half but enjoyed a boost from the weakness of the pound and said the US election had prompted an increase in trading activity.

As the disposal of its voice broking business proceeds towards an expected finale later this year, Icap, which will rename itself NEX Group at that time, also set out its plans for a progressive dividend policy as a new capital-light technology business.

Under its transitory current form, reported revenues rose 11% to £254m and, though trading profit was down 7% on the prior year mainly due to an increase in net finance costs, profits rose 78% at the pre-tax line or 10% to £86m if discontinued businesses are excluded.

Earnings per share were lifted 10% to 13.2p and the interim dividend was held at 6.6p and it was reiterated that the final dividend will be held at 22.0p for the full year.

The global hybrid voice broking and information business, whose sale to Tullett Prebon along with the Icap brand received FCA clearance earlier in the week, saw trading profit increased 28% to £59m.

Chief executive Michael Spencer, who also hailed the recent winning of a three-year, $65m deal with China Foreign Exchange Trade System, said he was optimistic the voice broking sale will complete by the end of the year, but noted that Tullett is responsible for securing various other consents before completion can occur.

"While we continue along the slow journey to more normal market conditions I am confident that the fundamental strengths of the business will provide an excellent platform for NEX Group plc's long term growth and success."

On the trading outlook, he said the US election had prompted an increase in trading activity though it was "too early to assume that the prolonged period in which we have experienced subdued market conditions has come to an end".

Spencer also set out various information for investors NEX's dividend policy with an initial base of 40%-50% of NEX's post tax trading profit, aspiration to drive margins towards 40% for each of the business segments in the medium term, net debt of £225m, expected rough requirements for £110m of cash for regulatory liquidity purposes, and that over the medium term free cash flow conversion is expected to be 80%-90%.

Broker Shore Capital said that based on the new NEX dividend policy, its current Mar 2018 earnings forecast of 20.3p - which may need to be downgraded on the back of continued investment in PTRI flagged by the company - pointed to a new dividend of 8-10p per share.

"The results mean that while our full year continuing revenue assumption of £512m looks broadly underpinned, our £170m trading operating figure (33% margin) looks challenging, albeit activity levels were said to have picked up since the US election," analyst Paul McGinnis said.