Icap has signed a $65m Chinese deal, pushing its shares nearly 3% higher amid talk it could be attractive to a predator.
The broker, which last year agreed to merge its voice broking business with Tullett Prebon, is providing technology for China’s main fixed income and foreign exchange trading system. The deal, valued at $15m a year for three years, helps Icap expand into the fast growing Chinese financial market.
Chief executive Michael Spencer said:
China is an extremely important financial market and we are honoured that our long term partner..has asked us to collaborate with them to build a significant platform which will play a key role in the future of the renminbi.
The news has pushed its shares up 11.2p to 426.8p, and in a buy note Numis said:
Icap has signed a deal with China Foreign Exchange Trade System (CFETS), China’s official inter-bank market trading platform and infrastructure provider, to provide the underlying technology for fixed income and foreign exchange electronic execution services in mainland China. The deal is valued at $65m (£45m) over a three year period (i.e. £15m per annum) and is modestly incremental to the remaining group (around 3% of 2018 estimated revenues £509m) following the sale of its voice broking division (expected later this year).
We do not expect to change our numbers at this stage, but believe it should help provide some valuable support to near-term consensus estimates. In our view, this represents a favourable endorsement of Icap’s infrastructure and services and should help justify a valuation multiple (2017 enterprise value/net operating profit after tax 13.3 times) that is closer to other financial infrastructure companies (18.5 times).
Numis added:
We believe Icap is ideally positioned to capitalise on the ongoing trends towards electronic trading and central clearing that are being driven by regulatory changes. This is unlikely to go unnoticed by other financial infrastructure companies in our view and we would not be surprised if it became an acquisition target once the sale of the hybrid voice broking division completes.
Meanwhile Paul McGinnis at Shore Capital said:
The deal looks to be a useful endorsement of the EBS BrokeTec technology platform as Icap transforms itself into a fintech company and should help in driving up the low single digit growth rates most recently reported in the continuing divisions at the March 2016 final results last month.
