ICAP posts poor trading update, brokers show mixed outlook for future results

Interdealer broker ICAP revealed on Tuesday that revenue figures for the half-year ended 30 September are expected to show a 10% decrease from last year on a constant currency basis and a 15% decrease on a reported basis.

The company blamed lower trading volumes and challenging market conditions for the disappointing expected revenue results.

ICAP reported a first-half revenue result of £736m for 2013. This year’s first half figure is due to be released on 19 November.

The company also announced that finance director, Iain Torrens, intends to leave the company to join the TalkTalk group as chief financial officer. However, to mitigate any disruption to the firm, ICAP also announced that Torrens will only leave the role once a suitable replacement has been found.

According to chief executive, Michael Spencer, the firm expects full-year profit to be heavily weighted towards the second half, due to the continuing restructuring of its global broking division.

In more detail, the firm expects that the restructuring move will allow over £60m of annualised savings, £40m of which will be attained this year.

"Low volatility levels and a focus by our clients on costs and regulation resulted in execution volumes remaining suppressed during much of the period," said Spencer. "While I do not expect a linear recovery, this provides a basis to be guardedly optimistic about future market activity."

What the brokers say

Liberum released their morning comment on Tuesday, advising a ‘sell’ recommendation on ICAP shares due to the firm’s “very poor” trading update, coupled with the imminent departure of the firm’s financial director.

Despite claims that trading in September supposedly improved, Liberum underlined that “this is unlikely to prevent downgrades from the market”.

Liberum did, however, take into account the reported £40m in cost savings in their broker comment. Liberum noted that although ICAP results are expected to be heavily weighted in the second half of 2014, ICAP’s markets remain unfavourable, resulting in a ‘sell’ rating.

However, Canadian broker Canaccord Genuity gave a more favourable outlook, choosing to maintain a ‘hold’ recommendation thanks to what it sees as ICAP’s rightful concentration on cost reduction. The broker envisages the advantages of the cost reduction efforts will be fully reaped in the years to come.

As of 11:09 on Tuesday, ICAP’s share price had slipped 2.06% to 387.53p per share.