TP ICAP cautions on flat revenue growth as trading dries up

TP ICAP, the interdealer broker, has cautioned that revenue growth will be flat this year after trading in swaps, bonds and energy dried up following the turbulent period in global markets at the onset of the pandemic.

The UK group said on Monday that full-year turnover was likely to be in line with last year’s £1.8bn, on a constant currency basis, as activity in its core markets slowed markedly after a bumper spring.

The statement pushed its shares 3 per cent lower to 192.4p, raising the pressure on the London-based company as it seeks to convince investors to back a $425m rights issue to help purchase Liquidnet, the US equities trading venue.

TP has agreed to pay for the $575m deal in cash but raise the bulk of funds from shareholders early in 2021, while also suspending dividend payments for the rest of the financial year.

When the deal was announced in late September, the associated rights issue was equivalent to about a fifth of TP ICAP’s market cap but is now closer to a third after a 30 per cent decline in its share price, according to Shore Capital. TP ICAP is valued at £1.1bn.

The company had been pinning its hopes of low-single-digit revenue growth in 2020 on market volatility driven by the US elections and Brexit. Vivek Raja, an analyst at Shore Capital, said the update was “disappointing” but consistent with recent updates.

“Albeit at a reported level, this is a downgrade to current-year revenue guidance,” he said.

To compensate, TP ICAP said it would restructure its broking business, home to more than 2,700 dealers who negotiate trades over the phone. It aims to make annualised savings of about £35m by the end of 2021. 

Last year TP racked up total costs of £1.5bn. It declined to comment further on the measures and said more details would be given in a presentation to shareholders at the start of December.

After coronavirus roiled markets in March, TP reported that first-quarter revenues rose 17 per cent, year on year. However turnover declined 18 per cent in the three months to September, at constant rates, TP reported. The falls were partially offset by a 9 per cent increase in its data and analytics business.

The Liquidnet purchase is intended to boost TP ICAP’s long-term revenue growth and underlying operating margins. It plans to use the cash flow from Liquidnet’s equities business to build out new initiatives in credit and swaps markets. The move will put it in competition with companies like Bloomberg, Tradeweb and MarketAxess.