Tullett Sees ‘Difficult’ Market Ahead After Profit Falls 31%

Tullett Prebon Plc, a London-based inter-dealer broker, forecast market conditions to remain difficult in the second half after profit slumped 31 percent.

Underlying pretax profit dropped to 43.2 million pounds ($73.3 million) in the six months to June 30 from 62.8 million pounds a year earlier, the company said in a statement today. Revenue fell 18 percent to 360.3 million, with reported pretax profit down 83 percent to 8.9 million pounds.

“The overall level of activity in the financial markets remained subdued” in the first half, Chief Executive Officer Terry Smith said in the statement. “It would be prudent to expect that market conditions will continue to be difficult.”

ICAP Plc, the world’s largest broker of transactions between banks, said on July 16 that revenue declined 19 percent from April to mid-July, with CEO Michael Spencer forecasting the level of volumes to remain “dire.”

Inter-dealer brokers such as Tullett and ICAP act as a go-between for banks that trade bonds, stocks, currencies, energy and derivatives, profiting when prices fluctuate. Low swings in prices have meant limited trading volumes for investment banks and inter-dealer brokers to profit from.

Revenue Declines

Tullett said revenue from trading interest-rate derivatives fell 24 percent to 70.6 million pounds from a year ago. That’s the biggest drop of six products including fixed income, energy and equities, with all reporting declines.

The company said on May 9 it agreed to buy oil broker PVM Oil Associates Ltd. for $160 million to help bolster its position in the world’s most actively traded commodity market. PVM reported revenue of $107.5 million and pretax profit of $18.2 million for the year to July 31, Tullett said.

The inter-dealer broker said revenue from trading energy products fell 14 percent to 46.6 million pounds.

Tullett said it expects further job cuts and lower fixed costs to be reflected in second-half results. The interim dividend remained at 5.6 pence a share.

“Tullett Prebon is clearly operating in an extremely difficult environment but is at least focusing on what it can actually control,” Phil Dobbin, an analyst at Espirito Santo Investment Bank in London, who has a neutral rating on the stock, wrote in a note to clients.

The shares rose 1.1 percent to 241.6 pence at 9:24 a.m. in London. They have dropped 36 percent this year. ICAP has decreased 22 percent in that period.

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