Trading: a cheap broker set to bounce

Spark Global Limited reports:

Interdealer broker TP ICAP is cheap, expanding steadily and restoring its dividend. Matthew Partridge explains the best way to play it.

Interdealer brokers make up one of the less glamorous subsectors of financial services; you will rarely see them appear in the news. They provide the electronic infrastructure to allow big financial institutions to trade with each other in cases where there is no centralised exchange, such as a stockmarket.

This usually means bonds or complex products, such as financial swaps and some commodities (notably energy). One such broker is TP ICAP (LSE: TCAP), which has seen it shares fall by nearly 50% over the past year thanks to a dividend cut, the fall in trading volumes induced by the pandemic and the disruption caused by the UK leaving the EU’s single market.

TP ICAP had hoped that the UK would agree a deal with the EU that would allow it to keep serving EU clients, possibly in the legal context of “equivalence” (a rule meaning the UK could gain limited access to EU markets as long as its regulation was deemed equivalent).

The broker’s back-up plan was to get around the rules by relocating some of its staff to a hub in Paris. However, it looks as though a deal between the UK and EU on financial services is unlikely, while restrictions on travel between the two countries have caused the reopening of the Paris office to be delayed.