One of the beneficiaries of a Greek exit from the eurozone and the subsequent market reactions could be Icap, according to a new report.
The interdealer broker has climbed 7.6p to 344.9p to head the FTSE 100 at the moment following a buy note from Faraday Research. Analyst David Lowery points out that Icap benefits from increased trading in volatile markets, and an escalation of the eurozone crisis with Greece leaving, while bad for the global economy, could be good for Icap. Lowery said:
More volatility and uncertainty would lead to more trades, which in turn leads to more commission for the company. Right now looks to be the calm before the oncoming storm. The catalyst to really get things moving could be the second Greek election, which will be held this weekend. If there's a rejection of the euro and or another impasse, then Greece is likely to be tipped over the edge.
Some brokers have downgraded their forecasts for Icap's future earnings but even on these slightly lower assumptions, the shares are still trading on just 8.8 times next year's forecasts. With a potential spike in volatility just around the corner, we feel Icap is perfectly placed to see earnings and profits increase over and above current forecasts.
But an example of the negative effects of the eurozone crisis is packaging group RPC. The company, which supplies the likes of Heinz and Nescafe, has reported a 72% rise in full year profits to £59.6m, helped by last year's acquisition of European group Superfos. But its shares have dropped 27.9p to 369.1p on worries about the eurozone:
In the short term the group is contending with a difficult and uncertain macro-economic environment whilst the current weakness of the euro against sterling should be noted, as a significant part of the earnings are made in the eurozone.
Panmure Gordon kept its buy recommendation but added that 2012's operating profits would be around £5m lower at current exchange rates:
With material euro exposure, the recent move in exchange rates causes us to trim 2013 forecast and target price [from 482p to 445p] as we assume less beneficial rates.
