The shares of ICAP (LSE: IAP) added 7p to 396p during early trade this morning after the broker — a go-between for banks that trade bonds, stocks and currencies — reported a 6% drop in third-quarter revenue amid challenging market conditions and a slower than anticipated December.
Full-year profit expectations remain unchanged, however. In November ICAP started cutting back on jobs and pay in a cost-reduction effort — today confirming that the cost savings programme remains on track.
New rules on swaps trading — a service to insulate business customers against fluctuations in interest rates — led to ICAP launching a swap execution facility (SEF) in October. Since the financial crisis interest rate swaps have been traded on electronic platforms, rather than through dealers, for reasons of clarity and reduced risk.
ICAP said that SEF is now the market leader for the trading of interest rates derivatives, but due new rules and continued bank deleveraging, final quarter performance could be hit.
The chief executive, Michael Spencer, stated:
“Innovation is vital for our success and our strong cash generation allows us to continue to invest in our future growth. The launch of the ICAP SEF was a very important project. We have had tremendous feedback from customers to our SEF and I am pleased that it is the market leader in interest rate swaps. We are also seeing the tangible benefits of our investments in post trade, as the regulatory push for risk mitigation drives demand for our solutions.”
Before today City experts were expecting ICAP’s upcoming annual results to show earnings of 35p per share and a dividend of 22p per share.
Following this morning’s price movement the shares may therefore trade on a P/E of 11 and offer a possible income of 5.6%.
The decision to ‘buy’ — based on those ratings, today’s results and the wider prospects for the broking sector — is solely your decision.