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Tullett Prebon, ICAP Advance After UBS Upgrade: London Mover

ICAP Plc and Tullett Prebon Plc, two London-based brokers, led financial stocks higher after they were upgraded by UBS AG on prospects of higher trading volumes.

ICAP, the biggest broker of interest-rate swaps between banks, rose 6 percent to 370.3 pence, the highest price in more than 11 months. The volume of shares traded beat the three-month daily average by more than 77 percent and the company was the best performer in the Stoxx 600 Financial Services Index.

Tullett Prebon, an interdealer broker that lines up buyers and sellers of securities for banks, rose 7.3 percent to 295 pence, the highest price since Feb. 14. The volume of shares traded beat the three-month daily average by more than 26 percent and the stock was the second-best performer among the 600 companies of the FTSE All-Share Index.

UBS upgraded both ICAP and Tullett Prebon to neutral from sell, citing valuations as well as the likelihood of increased trading volumes. Both companies have underperformed financial stocks by about 35 percent over the past year and exchanges by about 30 percent, the bank said.

“This underperformance has been driven by a relative de-rating and weak earnings momentum,” Arnaud Giblat, a UBS analyst, said in a note to clients. “We see risks to the upside on both fronts.”

Other financial stocks had enjoyed a greater increase in their price-earnings multiples than ICAP or Tullett Prebon, Giblat said in a telephone interview.

Tullett Prebon is trading at 7.9 times its estimated earnings for the current year, while ICAP is trading at 10.7 times. The FTSE All-Share Financials Index trades at 11.9 times estimated earnings.

Interdealer broker trading volumes are up 9 percent in May from April and 6 percent from a year ago, UBS said. The volume of shares traded on the FTSE All-Share Index last year was the lowest this century, according to data compiled by Bloomberg.

UBS raised its 12-month share price target for ICAP by 11 percent to 340 pence from 305 pence and removed the stock from its least-preferred list. It increased the price target for Tullett Prebon by 12 percent to 280 pence. The bank also raised its earnings estimates for both companies.

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