TP ICAP Group PLC (LON: TCAP)

TP ICAP Group PLC is an FTSE 250 index listed provider of market infrastructure. Moreover, the Company operates across key verticals such as Global Broking, Energy & Commodities, Institutional Services and Data & Analytics. The Group connects buyers and sellers in global financial, energy and commodities markets. 

Recent trend of dividend payments

The Company had paid an interim dividend of 4.0 pence per share on 05 November 2021, while the ex-dividend date was 30 September 2021. In comparison, the Company paid an interim dividend of 5.6 pence per share for an equivalent period of the prior year.

(Data Source: LSE Website, chart created by Kalkine Group)

Growth Prospects (covers trading update released on 02 November 2021)

• Decent Revenue Growth: TCAP had shown decent year-on-year revenue growth of around 5% during 9M FY21 to £1.38 billion, while it was £1.32 billion for the comparable period of 2020.
• Robust Divisional Performance: The revenue for Energy & Commodities division rose by around 16%, with growth across all asset classes, as energy market price volatility provided client trading opportunities.
• Increased Investments: TCAP continued to invest in and execute electronification and aggregation strategy while diversifying and growing the non-Global Broking businesses.

Key Risks 

• Surge in UK Inflation & New Coronavirus Variant Found in South Africa: The UK inflation reached a 10-years high as it surged by around 4.2% for the 12 months ended October 2021. It may cause a sooner-than-expected interest hike. The business growth could be impacted with the new deadly coronavirus variant developed in the South Africa region. Global sentiments remained negative because of this deadly variant news.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.
• Rise in Interest Rates: New Zealand came up with a second interest rate hike in the last two months. Moreover, rising inflation worldwide had put pressure on several Central Banks as they struggled to curb it.
• Other Significant Risks: TCAP is also exposed to climate change, legislative, fiscal, and regulatory developments, economic and financial market conditions, and risks associated with the impact of the pandemic.

Now we will analyse some key fundamental and shareholders statistics of TP ICAP Group PLC. 

Schroder Investment Management Ltd. (SIM) is the most significant shareholder as it holds nearly 90.90 million shares as of 30 September 2021. 

H1 FY21 Financial Highlights (for the six months ended 30 June 2021 as of 07 September 2021)

(Source: LSE Website)

• Decent Revenue: Despite the challenging trading conditions, the Company’s top-line revenue dropped by just 1% at constant currency to £936 million during H1 FY21. Moreover, the first quarter of 2020 remained the outlying record quarter.
• Acquisition Benefits: With the support from the acquisition of Liquidnet, the Agency Execution revenue increased by around 84% on a constant currency basis during the period.
• Slipped into Net loss: The Company had witnessed an adverse turnaround from achieving net profit in H1 FY20 to reporting a net loss for H1 FY21.

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 26 November 2021, at 08:25 AM GMT, TCAP’s shares were trading at GBX 130.80, down by around 4.87% against the previous day closing price. Stock 52-week High and Low were GBX 263.05 and GBX 130.80, respectively.

From a technical perspective, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. Moreover, a 14-days RSI of ~29.03 suggests that the stock is trading near oversold territory. Hence, there could be an uptick in the stock price.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative) 

Business Outlook

The Company remained on track to achieve £35 million of annualised cost savings by the end of 2021.  The Company gained positive momentum during Q3 FY21 and returned to revenue growth. However, TCAP expects full-year FY21 operating margin to remain lower than the prior year levels because of the unfavourable foreign exchange movements and strategic investment spending. TCAP’s trading activity slowed down due to the flattening of stimulus packages as announced by several central banks around the world. Thus, it depends on the risk appetite of the investors to take a reasonable position in this Company.

Considering the revenue growth during 9M FY21, significant market opportunities, consistent dividend payments, and support from the valuation as done using the above method, we have given a “BUY” recommendation on TP ICAP Group PLC at the current market price of GBX 130.80 (as on 26 November 2021 at 08:25 AM GMT), with lower-double digit upside potential based on 7.84x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

*The dividend yield is subject to change as per the stock price movement.

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