Investors fail to appreciate the long-term potential in shares
of interdealer broker Icap. This may be somewhat understandable due to the changing nature of the business as it adapts to new regulations and given how many moving parts there are at the moment. Essentially, voice broking for banks still accounts for half of its revenues while its electronic broking and post-trade services arms bring in more than half of profits. The former is ex-growth - with parts held back by new regulatory requirements - but the latter two business segments are still growing.
Electronic broking is benefitting from a wider uptake of derivatives especially as the yuan´s role in international finance picks up. Post-trade services, meanwhile, will profit from regulators´ push for the daily settlement of off-exchange deals, so as to limit 'counterparty' risk (one side of the trade effectively falling off a cliff overnight). Furthermore, Icap tends to benefit from increased volatility in interest rate and currency markets (as per current market expectations), even if the recent fall in the US dollar
versus sterling and the euro has been a drag.
With the shares trading at 12 times´ earnings and given the future news flow looks to be positive "suggests at this level they warrant a cautious 'buy'", says The Times´ Tempus column.
London and New York markets have their differences. Let´s go over some of them. On AIM a company selling on 14 times´ forecast revenues - and nary a profit in sight - would be considered pretty expensive. Over on the other side of the Atlantic, Americans seem unfazed. Yes, such a company exists and it´s called GW Pharmaceuticals. Furthermore, US investors threw $94m its way last May, when it decided to seek a listing on the Nasdaq, helping to catapult its market capitalisation to over £600m at present.
Of course, this is no normal outfit and cannot be judged on normal financial metrics. The biotechnology outfit has only one compound on sale at present (based on variations on active ingredients to be found in cannabis) for the treatment of multiple sclerosis.
However, the firm is working on two variations on that same compound. One has so-called 'orphan drug´status in the US, an area of interest to the big pharma companies given the higher margins for treatments for rare ailments. There are another four compounds under research at the moment but they are a long way off being viable.
Those American investors may be prepared to take a view that the shares have further to run, but those who bought into the company on AIM might think that, "with their investment up sixfold in a few months, it might be time to take some profits", Tempus writes.
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