Numis Securities has placed its rating and price target for TP-ICAP PLC (LON:TCAP) under review after the interdealer broker warned that it will miss 2018 profit expectations and announced that its chief executive officer, John Phizackerley is leaving the company.
In a note to clients, Numis’ analysts said: “A disappointing announcement from the company, as it faces up to the challenges of integration while delivering a medium-term growth strategy.”
READ: TP ICAP plunges as CEO quits amid warning that Brexit-related costs will see it missing 2018 profit expectations
They added: “Short-term costs associated with Brexit, regulation and IT security are not really a surprise or problem, but forecasts are impacted by the lower synergy targets, higher cost/ income and the need to invest in parts of the business, which lead to a major change to 2019 estimates - early estimate of around a third lower.”
The analysts said that, while they are still reviewing their forecasts the likely impact on its 2019 forecasts will be a cut of around a third off their previous forecast for adjusted pre-tax profit of £322mln, although it added there will be some benefit from recent US dollar strength.
They noted that TP-ICAP said its first-half 2018 revenues were 3% higher at constant exchange rates, and 2% lower at reported rates, so the strength of the dollar has helped, so there will be a small upgrade to its full-year revenue forecast.
Brexit costs
In its trading update, TP-ICAP had said full-year earnings would be hurt by additional costs of about £10mln related to Britain's planned departure from the European Union and new rules on market transparency, while it also cut its cost-saving target to £75mln from £100mln annually by the end of 2019, and said additional capital requirements and credit refinancing were likely to push up its finance costs to around £35mln this year.
As a result, it added, 2018 earnings per share (EPS) are expected to be slightly below the bottom-end of the range of analysts' expectations.
Analysts were expecting the firm to post underlying EPS of 37p for 2018, with a range of 34.9p to 39.0p.
The FTSE 250-listed company also said 2019 would see £25mln in costs related to Brexit, regulation, legal needs, and IT security.
In afternoon trading, TP-ICAP shares had dropped by 34% to 274.6p.