Tullett Prebon results solid but warns of FCA probe and 2016 slowdown

Annual results from Tullett Prebon showed profits were 7% but the inter-dealer broker warned of lower revenues so far in 2016 and that it was being investigated by the Financial Conduct Authority over certain trades undertaken between 2008 and 2011.

The FCA are investigating the company over trades where there appeared to be no commercial rationale but where brokerage was charged, together with the company’s non-discovery or ability to provide audio files requested. No estimate has yet been made of the possible consequences or fine.

For 2015, revenues of £796m were up 13% on the previous year, with the FTSE 250 group having previous disclosed that sales rose 4% year-on-year for the final two months compared to the 5% YOY fall in the previous four months that led to a profit warning in early November.

With underlying operating profit increasing by 7% to £108m, underlying pre-tax profits rose 8% to £93.7m.

Earnings per share were flat at 32.2p due to the increased average number of shares in issue following the acquisition of PVM Oil Associates in November 2014, with the effective tax rate came in slightly lower at 18.7%.

Directors held the dividend flat at 16.85p as expected.

Chief executive John Phizackerley hailed the result against the backdrop of a challenging trading environment and subdued client demand.

"We took a number of initiatives during 2015 in pursuit of our goal to become the world's most trusted source of liquidity in hybrid OTC markets and the best operator in global hybrid voice broking."

Chief among these was agreeing the acquisition of ICAP's global hybrid voice broking and information business, upon which shareholders will vote on 24 March.

The deal, Phizackerley said, "provides a unique opportunity to accelerate the delivery of our strategy, and we are in the process of planning the integration of the two businesses to be implemented after completion of the transaction which we expect will be during 2016".

He noted that revenue in the first two months of 2016 was 3% lower than in the same period in 2015 at constant exchange rates, with lower broking revenue in the traditional interdealer product areas of treasury products, interest rate derivatives and fixed income offsetting strength elsewhere.

Analysts at Shore Capital said the results were in-line with forecasts and, while the ICAP deal has the potential to create value, the ultimate game changer would be a return to a more normalised global monetary policy environment resulting in improved risk appetite from investment banking customers and a return of the carry trade.

"With no real sign of this currently on the horizon, and indeed an element of permanence to the lower risk appetite of investment banks - due to more onerous capital requirements and smaller balance sheets - Tullett is trying to widen its feel pool to include buy-side firms along with corporates, governments and sovereign wealth funds."