Credit Suisse upgrades interdealer broker ICAP
Credit Suisse upgraded interdealer broker ICAP to ‘outperform’ from ‘neutral’ saying deal synergies and the stock’s re-rating potential appeared to be undervalued.
In November, ICAP announced plans to sell its global broking division to Tullett Prebon. The enlarged group will be known as TP-ICAP and ICAP shareholders will get a 56% stake.
Credit Suisse said that following recent share price weakness the stock price now failed to capture upside to shareholders from deal synergies and long-term value creation potential resulting from industry consolidation.
“We see scope for at least £100m of cost synergies (8% of combined costs) which could drive positive earnings revisions at TP-ICAP and create additional value for ICAP shareholders,” the bank said.
In addition, it argued the re-rating potential was under-appreciated.
CS reckons the ICAP ‘NewCo’ can command a re-rating reflecting: strong gearing to regulation-driven demand for electronic trading infrastructure, post-trade and risk management services; higher operating margins ; greater exposure to recurring subscription revenue; re-leverage potential; and industry debate around vulnerability to a potential takeover bid.
Credit Suisse maintained its 510p price target on the stock.
Source: ShareCast – Credit Suisse upgrades ICAP on deal synergies
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