ICAP’s interim update was solid enough – pre-tax profits for the year will be within the £333-£357m range it already announced some eight months ago and revenue for the third quarter was up nine per cent.
But chairman Michael Spencer’s statement was couched cautiously, highlighting the interdealer broker’s improvement from “volatility in financial markets”.
A disappointment for investors, who hoped Spencer may pull a rabbit out of the hat, but a realistic acknowledgement that it’s largely not management that will determine how Icap will perform, but wider macro events. Its pure scale – it is the largest interdealer broker by some distance – means that it will perform the best when market circumstances enable it to do so.
Investors, however, appear to have forgotten this. Its shares have surged 30 per cent in just six months – reflecting the pick up in market activity. They now trade at 14.1 times March 2011 earnings – a deserved premium to the sector. Chasing the shares higher, however, would be an unwise gamble on where the economy is going in 2011.