Investors had a raft of company earnings results to digest on Thursday, but it was those of financial group ICAP that prompted the biggest response. ICAP led the blue-chip gainers, outperforming the weaker market with a rise of 6.0% to 234.5p at midday, while the FTSE 100 index slipped 1.1% or 47.92 points lower to 4,186.34.
The interdealer broker's intermin management statement, released in pre-open deals, stated revenue in the quarter to 31 December increased by some 20% compared to the same period in 2007, although activity in the financial markets started to slow from November.
ICAP said of the first weeks of 2009 that very strong activity in some markets had been more than offset by lower levels in others, with interest rates and bonds strong but shipping and emerging markets slow.
"Our business continues to perform well in these challenging conditions,” Chief Executive Michael Spencer said. “We expect to take full advantage of the restructuring of the financial markets currently underway and remain positive about the medium term potential for the business.”
Looking ahead, the group expanded its guidance range for adjusted pretax profit for the full year to 31 March 2009 to “within the range of analysts' current forecasts” from its former estimate of £347 million and against the previous year’s £330 million. Current consensus ranges from £336 million to £356 million for the year.
The outlook statement also referred to the group's expectation of reduced demand for structured products and increased demand for high volume liquid products, the latter being those that tend to operate at lower margins.
Despite the shares rally on the back of the market update, analysts expressed concerns about short-term visibility. Among them, Daniel Stewart said it sees short-term operational pain as volumes decline but medium- to long-term reasons to keep buying ICAP.
The broker pointed out that last week it downgraded its forecasts for 2009 by 3% and for 2010 by 14% on the back of reduced volumes in November, December and January and now expects the rest of the market to follow suit, certainly for 2010. The broker has a Buy recommendation and 275p target price on the ICAP stock.
Panmure Gordon, which has a Sell rating, told investors today that a lack of comment on the short term outlook should raise concerns while long term visibility remains poor.
And Evolution Securities, noting the group’s comments on lower margin products, said it forecasts full-year 2010 EBITA margin of 22%, down from its 24% forecast for 2009. However, the broker believes the company has significant flexibility to resist this pressure with variable costs representing around 33% of revenue.
Evolution added that it the shares are attractive at current levels, hence its Add advice and 290p target price.
