LONDON (ShareCast) - (ShareCast News) - Interdealer broker TP ICAP, formerly Tullett Prebon, saw increased trading activity in the final quarter of 2016, largely due to the volatility in equity markets in the aftermath of the US presidential election, and expects an increase in revenue for the year.
The FTSE 250 company anticipates revenue for the year ended 31 December 2016 to be 12% higher than the £796m reported the previous year, with a 4% rise at constant exchange rates.

There was revenue growth across all product lines in the fourth quarter, particularly in its 'heritage' products such as interest rate derivatives, fixed income, and treasury products, which all benefitted from the increase in volatility and market activity in the aftermath of the US presidential election and expectations of an interest rate hike by the US Federal Reserve.

In December the company bought the global hybrid voice broking and information business from NEX Group, the new holding company of ICAP Group, for 310.3m shares, including NEX's associated technology, broking platforms and some of its joint ventures and associates, in a bid to create the world's biggest broker.

The company also said that its integration plan has moved to the implementation phase.

HSBC upgraded TP ICAP to 'buy' from 'hold' in light of the strong fourth quarter revenues and lifted the target price to 520p from 480p due to the upside of 20% implied by its target price.

The bank raised its 2016-18 earnings per share forecasts to factor in stronger revenue, but noted it had not seen the pro-forma figures for the combined entity yet.

HSBC said: "We lift all revenues estimates, but especially the two business lines that benefit the most from uncertainty around future interest rates, the fixed income and interest rate derivatives. Furthermore, we think that the equities business will strongly benefit from volatility in markets."

This was echoed by Neil Wilson, senior market analyst at ETX Capital, who said that volatility in financial markets means good business for traders and intermediaries like brokers.

"Data this week shows US banks have enjoyed much better trading revenues too, with Wall Street's finest generating $6.4bn in the third quarter, the second-best third quarter since 2000 and an increase of 20% from the same period a year before. Fixed income revenues saw the biggest gains and we know that globally the biggest banks are set for something like a 5% rise in fixed income revenues in 2016. Bonuses are expected to be a lot higher than previous post-crisis years.

"Looking ahead into 2017, the prospects are rosy for TP ICAP as it builds on its recently-completed merger which ought to deliver some significant cost synergies worth at least £60m, perhaps a lot more. And on the trading front we can expect activity and volatility to remain elevated as we head into a period of greater uncertainty in the markets and what FOMC members have admitted could be a quicker pace of tightening than previously expected."

Shares in TP ICAP were up 8.2% to 468.95p at 0914 GMT.

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