ICAP Plc (IAP), the world’s largest broker of transactions between banks, rose the most in almost four months after Morgan Stanley said the company will benefit from improved revenue and increased cost savings.
The shares rose as much as 8.1 percent, the most since May 14, and were up 6 percent at 397.3 pence at 11:46 a.m. in London trading. The gain was the biggest among 31 companies on the Stoxx 600 Financial Services Index. The volume of shares traded was 74 percent of the three-month daily average.
Morgan Stanley upgraded the stock to overweight from underweight and increased its 12-month price estimate by 48 percent to 418 pence. It also raised earnings-per-share estimates for this year, 2014 and 2015.
“With two-thirds of revenues derived from rates and foreign exchange and a strong electronic offering we view ICAP as the most geared to cyclical improvement amongst our infrastructure coverage universe,” Morgan Stanley analysts Anil Sharma and Bruce Hamilton said in a note to clients.
Cost savings planned by the London-based company over the next three years will probably offset any loss of revenue resulting from regulatory reform, Hamilton said.
Trading at about 8.5 times estimated 2015 earnings meant ICAP was valued 20 percent below its post-financial crash average multiple, while competitors such as Tullett Prebon Plc (TLPR) were trading about 10 percent higher, the analysts said, an unjustified valuation that offers an attractive risk-to-reward ratio.
Spot foreign exchange daily trading volumes averaged $78.7 billion last month, 18 percent lower than a year earlier, ICAP said in a statement yesterday. That was the lowest in at least seven years, according to data on the company’s website. Total electronic trading rose 4 percent to $669.5 billion.
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