HSBC upgrades TP ICAP as market volatility boosts revenues

HSBC has upgraded interdeal money broker TP ICAP to ‘buy’ from ‘hold’ and raised its price target to 520p from 480p after its fourth-quarter revenues beat its expectations.

The group’s Tullett Prebon business reported a “significant” increase in trading activity in the fourth quarter which has pushed up the firm’s revenue expectations for full year 2016 up to approximately 12% higher than the £796m reported in 2015, according to a pre-close trading statement released on Friday.

The group believes growth will be achieved across all product lines in the fourth quarter, especially in its traditional ‘heritage’ products of Interest Rate Derivatives, Fixed Income, and Treasury Products that have been in decline for the last three years. The management attributed this recovery to the aftermath the US election and interest rate hike expectations leading to an increase in volatility and market activity.

The broker has raised its 2016-2018 expected earnings per share (EPS) forecasts to reflect these rising revenues. For 2016 the EPS forecast is now 13% above the median of the Factset consensus forecast, while 2017 and 2018 EPS forecasts are 8% and 19% above, respectively.

The share price has slipped 0.19% to 466.50p at 1236 GMT on Monday.