Description

Icap PLC (IAP: London Stock Exchange) 463 pence
Market cap: GBP 3.0bb

Icap PLC (IAP_LN) is the leading global voice and electronic inter-dealer broker, controlling over 25% of a USD7bb market. Icap’s share price has been hammered recently, along with most financial services stocks, and is trading near a 52-week low. At current price, Icap represents an extraordinary bargain on a high-quality business, with a cheap option on a fast-growing electronic transaction network Icap has already built out.

Like Tullett Prebon (TLPR LN) which I posted in June, Icap is a “broker’s broker” of trades between big investment banks, hedge funds, and other institutions. Fundamentally, the market is completely misunderstanding how these exchange-like brokers benefit from volatility and volume, and in particular Icap’s unique upside from electronic trading. Icap has recently announced that June and July were record volume months for both electronic and voice broking, as chaos in the global credit markets has substantially boosted trading volumes of key products such as interest rate swaps, FX, credit derivatives and US treasuries.

Similarly, derivatives brokers/exchanges Tullett Prebon, Man Financial (MF), NYSE Euronext (NYX), Tradition (CFT SW), Deutsche Bourse (DHE LN) and GFI Group (GFIG) have all formally or informally reported record derivatives trading volume and revenue in the last few weeks.

Further, price competition with eSpeed in Icap’s core electronic US treasury trading business (a duopoly with eSpeed) appears to have ended, and we believe that Icap’s electronic margins are increasing both due to higher commissions and cost savings from integration of the EBS acquisition.

Icap has a high-quality voice broking business and the biggest market share of high-margin, high-growth electronic interdealer broking. Icap is run by its well-regarded, very incentivized founder-CEO Michael Spencer, who owns about USD750mm of Icap shares. The market is undervaluing Icap’s dominant voice broking business, and is also undervaluing the “moat” that Icap is building in its high-margin electronic trading network. Both voice and electronic derivatives broking are benefitting not only from current volatility in derivatives, but also long-term secular market- and regulatory-driven growth in derivatives usage that should continue for years (from the market’s ongoing multi-year transfer of risk from risk-averse banks and insurance companies to risk-taking trading entities, and from the regulatory conclaves of Basel II and Solvency II that are formalizing this risk transfer into government policy). The market is effectively putting little or no value on the implicit call option on Icap’s much more significant, fast-growing and market-leading electronic transaction network.

The successful electronic platforms in high-volume institutional products appear to be franchises that will be extremely difficult to displace (“Liquidity begets liquidity” is a phrase I’ve heard used several times in this context). This is somewhat in contrast to the fragmented US cash equities businesses, where newer electronic entrants such as the BATS ECN have been able to quickly grab market share from slightly older electronic entrants such as ARCA-NYSE and the NASDAQ-affiliated ECNs. Icap has demonstrated this in two electronic markets already, spot FX and US treasuries, which have consolidated from fragmented voice businesses into electronic duopolies with Icap having a 60% market share. Thus, I think that franchises such as Icap’s electronic division deserve higher valuations.

The interdealer broker industry

Inter-dealer brokers are a small club of specialized voice and electronic brokers who act as an intermediary between institutional participants in wholesale financial markets, for complex and/or large transactions in equity and credit derivatives, fixed income, money market, foreign exchange, and energy. They operate primarily in the “over-the-counter” market for these products (instruments not traded on an exchange). The biggest interdealer brokers by market share are Icap (25%+), Tullett (18%), Tradition (14%), BGC/Cantor (14%), GFI (11%), E-Speed/Cantor (2%).

These OTC wholesale markets are growing rapidly, as the instruments traded are used to manage and profit from volatility in interest rates, equity and debt markets, commodities and energy, which have all become much more actively traded markets due to proprietary trading from investment banks and hedge funds. Also, market volatility creates more demand for the products that Icap and the other IDBs trade.

The electronic interdealer business is less risky in some ways than the voice business (voice brokers can be poached, electronic liquidity is much harder for a competitor to lure away) but requires much more capital investment and is a less-established business, so in some ways it is riskier.

For more background on the industry, including electronicization of various trading markets and on industry consolidation opportunities, please see my Tullett Prebon writeup.

Overview of Icap plc

Icap’s businesses are distributed across 29 countries worldwide and with over 3,500 staff; with Europe and the Americas the two largest regions by revenue, followed by Asia. Icap’s voice division accounts for 78% of revenue and 69% of profits; Icap’s electronic division accounts for 18% of revenue and 22% of profits; and its data division accounts for accounts for 4% of revenue and 9% of profits.

Icap’s revenue breakdown by product is as follows (including both electronic and voice):

Interest rates 42%

(includes interest rate swaps, options, govt and agency bonds, mortgages)

Foreign Exchange 15%

(includes spot, forwards and options)

Credit 11%

(includes corporate bonds, convertibles, credit derivatives)

Emerging markets 10%

(all markets outside US, North America, and Europe)

Energy 9%

(Oil, gas, coal, electricity, emissions, weather, freight)

Equities 9%

(equity derivatives and structured products)

Information 4%

(market data and analysis)

History of Icap plc

Michael Spencer set up Intercapital plc in May 1986 initially to concentrate on the new interest rate swaps market. As a specialist financial derivatives broking firm, Intercapital grew from the original four people to over three hundred world-wide, with offices in London, New York, Sydney, Singapore and a joint venture in Tokyo. In October 1998 Intercapital merged with Exco plc, a listed money broker, and formed Intercapital plc.

Icap was formed by the merger of Garban plc (a fixed income and FX broker) and Intercapital plc in September 1999 and was previously named Garban-Intercapital plc. The Garban-Intercapital merger brought together Garban's traditional strength in government and corporate bonds, interest rate products and money market instruments with Intercapital's strengths in interest rate swaps and options, commodity swaps, illiquid securities and foreign exchange options. Garban-Intercapital plc’s name was changed to Icap plc in July 2001. Icap plc subsequently acquired Brokertec and EBS in the US treasury and FX electronic trading markets, which combined now do about USD670bb in daily trading volume.

Icap recently received a waiver from UK regulators allowing it to reduce its regulatory capital requirement by GBP300mm, which Icap says will be used to make acquisitions using debt without breaching the regulatory capital limit, or to return cash to shareholders, either through special dividends or share buybacks. A GBP300mm special dividend would be worth about 47 pence per share.

Icap’s voice business

Icap’s traditional voice business is still its biggest revenue and profit driver, accounting for GBP867mm of revenue in the 2006 fiscal year (ended March 2007), and contributed GBP170mm of EBIT (69%) at an EBIT margin of 19.6%. The voice business is focused on energy, credit derivatives, and interest rate swaps, and includes about 1900 people, including brokers and trainees. Icap says its most important measure of the efficiency of the voice broking business is voice revenue per voice broker, which grew from GBP413,000 in fiscal 2005 to GBP454,000 in fiscal 2006 (by contrast, Tullett’s voice revenue per broker as of year-end 2005 was GBP377,000 and for year-end 2006 was GBP413,000).

The existing electronic business – US treasuries and spot FX

Icap made two important acquisitions to build its electronic brokerage business. The first was the acquisition of Brokertec in 2003. Brokertec was created in 1999 by an industry consortium and is the leading electronic interdealer derivatives trading platform, primarily in US treasuries (its main competition is BGC/Cantor Fitzgerald’s eSpeed subsidiary, which trades publicly under the ticker ESPD). The second was EBS, acquired in 2006. EBS is a leading electronic platform for FX trading. Icap believes that cost savings from combining EBS’ operations into Brokertec should result in USD58mm of annual cost savings, much of it from redundant technology infrastructure and IT service contracts, which seems plausible.

Icap’s electronic division generated GBP199mm of revenue in fiscal 2006, and GBP55mm of EBIT for a 27.8% margin. Margins are higher in electronic trading because lower commissions are offset by much higher volume, and there are no voice brokers to compensate, although voice brokers get some incentive compensation for moving voice trading to electronic (overall, the shift in mix top electronic led to an overall decline in Icap’s staffing costs from 60% of revenue in 2005 to 57% in 2006).

Brokertec’s historical strength has been US treasuries, and EBS has been strongest in spot FX. Icap has managed to move these two enormous markets from a fragmented voice state to an electronic duopoly, essentially sidelining voice trading and almost all of the original competitors.

Icap’s biggest electronic market has been highly liquid “on the run” US treasuries (less liquid “off the run” treasuries are still traded in large part on the voice market). For many years, Icap’s biggest competitor in this area has been eSpeed, which has for years engaged in destructive price competition on commissions, including giving large traders fixed fee commissions instead of per-trade commissions (if you were a big enough trader on eSpeed, you could pay a fixed fee, no matter how much volume you did, which was eSpeed essentially giving away margin to attract volume).

However, in the last half of 2006, eSpeed essentially ended the destructive price competition with Brokertec. eSpeed had been experimenting beyond flat fees with a variety of pricing offers to large electronic traders, an experiment which appears to have ended. In conversations with traders, it became clear eSpeed’s pricing offers were viewed as “gimmicks” which added little value even though eSpeed was cutting commissions significantly. Algorithmic traders go to where the volume is, as that is how they make their money, thru high-frequency transactions which earn extremely small profits per trade. While lower commissions are attractive to a point, lower commissions are meaningless to an algorithmic trader if the underlying volume is not there.

Instead, the value of Brokertec’s 50% greater market share is in and of itself a moat that is allowing Icap to exercise pricing power now that eSpeed has stopped giving away money. We have heard that Brokertec is already beginning to raise rates for new customers and they are gearing up to renegotiate old deals that allowed high-volume algorithmic traders to trade US treasuries at extremely low rates. Brokertec appears to feel comfortable raising prices substantially in the current environment.

Liquidity does not automatically flow to whoever has the lowest commissions. “Commercial” traders, i.e. users of electronic markets who are simply trying to execute transactions, not make markets as algorithmic traders do, are much more sensitive to being able to execute their volume quickly and at a good price; commission costs are simply too small a portion of the overall transaction value to move them to an illiquid market. “Proprietary” algorithmic traders, who are essentially making markets, are much more commission sensitive, as swings in commission rates can have a much more significant impact on their P&L. However, their core P&L depends on being able to trade in large volume, with commissions as a secondary concern.

Thus, “liquidity begets liquidity” and tends towards a winner-take-all outcome in electronic markets, as everyone ultimately needs to be where the liquidity is. However, users of electronic markets are well aware that a duopoly suits their needs much more than a monopoly, and will generally act to maintain a weaker competitor such as eSpeed (or even start their own) so as to act as a check on unlimited pricing power by the market leader. But, only one other competitor needs to survive in order to check the pricing power of the leader. Therefore, electronic markets over time do and should tend to coalesce around two main market centers.

This is what has happened to date in the electronic US treasuries market. Brokertec’s 60% market share allows them to provide much greater liquidity, which in turn attracts more electronic traders, and enhances Brokertec’s competitive position. eSpeed, the smaller half of the duopoly, is basically kept in business by the market as a check on Brokertec’s pricing power. And duopolies may start off with competitive pricing, but over time in most industries tend to settle into a rational pricing pattern, which is what we see finally happening in this market.

eSpeed, by way of background, is run by Howard Lutnick (who also runs eSpeed’s private parent company, voice bond and interdealer broker BGC/Cantor Fitzgerald), who is often criticized in the IDB industry for overspending to “poach” voice brokers. Lutnick has also been attacked by activist shareholders for allegedly running eSpeed (which is a public company with 60% outside shareholders) essentially at breakeven or a loss in order to provide lower commissions for electronic trading to his private partnership BGC/Cantor, which is the primary source of eSpeed’s order flow. eSpeed also loans its balance sheet cash to BGC/Cantor on terms that activist shareholders argue are disadvantageous to eSpeed. However, BGC attempted to go public earlier this year and was apparently not able to raise sufficient interest in its offering, and is now engaging in a reverse merger with eSpeed which should make BGC/eSpeed a combined public company.

This has two implications for Icap: first, eSpeed’s valuation should not be used as a comp to Icap’s electronic broking business, as we cannot assume eSpeed has been operated so as to maximize its own profit (which is reflected in its low market valuation); and second, the race-to-the-bottom pricing in the electronic US treasuries market has probably come to an end for good, as eSpeed’s arrangements with BGC will be under much closer scrutiny when they are operating as a unified public company, and BGC/eSpeed management will be incentivized to increase profitability of the new combined public company. Thus, we can expect Icap’s profitability in the Brokertec business to increase as competition becomes more rational.

The electronic opportunity beyond treasuries and FX

Beyond the two electronic markets that Icap “owns”, we believe that Icap is undervalued by the market as it is in the leading position to similarly capture other interdealer product markets as they go electronic. While it is difficult to put precise numbers on it, I believe this “call option” is worth “a lot” on both an absolute basis and on a relative basis. On an absolute basis, the eventual transformation of a large part of interdealer broker business from a voice to an electronic business is likely to over time result in the establishment of a series of highly profitable duopolies protected by their own ever-deepening, self-reinforcing moat of liquidity.

There is no brand loyalty among traders, so just the fact of being Icap does not give Icap any advantage in any new market, they need to get the critical mass of liquidity in any new market. However, Icap is building two valuable assets that will give them at least the ability make big entrances into new markets.

First, Icap’s existing electronic brokerage businesses create physical electronic and software links to a huge installed customer base, both in the front end for trade execution, and in the middle and back offices for trade processing and clearing. Icap has 1600 customer installations in 45 countries for its electronic trading network, plus another 550 internet-based users.

A competitor of course can in theory invest the time and money to replicate such a network (much as anyone could come along and replicate Coke or Anheuser Busch’s distribution network, if they were willing to invest sufficient time and money), but it becomes less and less economically plausible for someone to do as Icap becomes more and more dominant in electronic trading.

Second, Icap has invested in electronic clearing, settlement and netting businesses for OTC derivatives (a weak link in the OTC markets), which serves to tie its customers further to Icap through back-office processes.

Third, unlike a traditional voice brokerage network which is a “hub and spoke” network between the interdealer broker and its customers, where the interdealer broker essentially broadcasts prices on request to voice customers, the electronic networks are more valuable exchange-type networks where participants can interact directly to conduct transactions (with Icap as the operator of the exchange taking a fee for all transactions), which can substantially increase the number of transactions and the value of the network to its participants. This raisies switching costs and stickiness significantly beyond those of a hub and spoke network.

Another key characteristic making Icap “call option” more valuable is the fact that markets which go electronic tend to see huge upside growth in trading, in part because the ability to trade electronically, anonymously, and at low cost inevitably attracts algorthmic traders, who can generate huge volumes of activity with a surprisingly low capital base and on extremely low profit margins per trade. So not only do existing institutions trade more, as there is less friction and more trading opportunities, but new groups of high-volume algorithmic traders (who need very little initial financial capital) come into the market.

Market data

An additional benefit from the fast-growing electronic trading business is the value it adds to Icap’s high margin market data business, which produced GBP22mm in EBIT in 2006. Algorthmic trading is dependent on accurate, comprehensive, and fast market data, and the high volume of market data produced by Icap’s electronic brokerage business should be a business where they can raise prices over time, and also expand its customer base as more electronic traders enter the market. By way of comparison, NYSE, since it acquired ARCA (a cash equities ECN) and instituted its hybrid voice-electronic market system, has raised prices for ARCA dramatically, particularly for algorithmic clients who need streaming real-time full depth of book. Also, market data businesses may be particularly attractive to exchange acquirers, as they historically have been significant revenue sources for the exchanges.

Valuation

These are historical adjusted summary financials and my projections for Icap as a whole:

Segments, GBP

March 2007A March 2008E March 2009E

Revenue EBIT margin Revenue EBIT margin Revenue EBIT margin

Voice	867.4	170.0	19.6%	945	189	20.0%	1012	205	20.3%
Electronic	199.1	55.4	27.8%	224	64	28.6%	255	75	29.4%
Information	39.8	22.4	56.3%	48	30	62.5%	56	36	64.3%
total	1106.3	247.8	22.4%	1217	283	23.2%	1323	316	23.9%

Summary financials, GBP

	2007A	2008E	2009E
Revenue	1106.3	1217	1323
EBITDA	277.8	325	357
EBIT	247.8	283	316
NI	155.1	181	203
shares	649	649	649
EPS	0.24	0.28	0.31
Margins
EBITDA	25.1%	26.7%	27.0%
EBIT	22.4%	23.2%	23.9%
Growth
Revenue		10.0%	8.7%
EBITDA		17.0%	9.8%
EBIT		14.2%	11.7%
NI		16.8%	11.8%

Valuation

Icap plc	Mar 2007A	Mar 2008E	Mar 2009E
TEV/Revenue	2.7x	2.5x	2.3x
TEV/EBITDA	10.7x	9.2x	8.4x
TEV/EBIT	12.0x	10.6x	9.4x
P/E	19.4	16.6	14.8
Earnings Yield	5.2%	6.0%	6.7%
Net debt/EBITDA	NA	NA	NA

Icap valued as a whole:

First, if we look at Icap in its entirety, its electronic trading operations (both from improving margins and volume growth) should give it a higher long-term growth rate than Tullett, justifying a higher multiple. For the reasons outline above, I think it is reasonable to assume that Icap’s growth rate should be higher, and that over time Icap’s capital expenditures should trend down, as it is heavily investing in technology now. So 10.6x March 2008 EBIT and 9.4x March 2009 EBIT is relatively inexpensive for a growth business. Also, keep in mind between now and March 2009 Icap should generate at least GBP400mm in free cash flow, which I am not factoring into the TEV here. And if I am wrong about the growth, we are paying around the market multiple (18x) on next year’s earnings.

Icap as a sum of the parts:

Icap can also be looked at as three businesses, with a current TEV of around GBP3.0bb:

Voice business

Icap’s voice business did GBP170mm of EBIT in fiscal 2006, and I am expecting through revenue growth and operating leverage for it to generate GBP189mm of EBIT next year. Icap’s voice business is around more efficient that Tullett’s by about 10% on a per-broker and EBIT basis. Tullett’s business is trading around a 10.6x EBIT multiple right now, so let’s assume that Icap’s voice business deserves at least a 11.6x EBIT multiple, which works out to about GBP2.17bb (and keep in mind we believe the market is undervaluing the voice businesses of both Tullett and Icap, so these multiples are conservative in our view).

Market data business

The market data business of course is intertwined with the voice and electronic trading businesses (as they create the information that is sold by the information division), so it is a little artificial to value it on its own. However, it is broken out separately by Icap, and I would rather value it on a stand-alone basis for clarity, rather than assign some of its value to voice and some to electronic, which we don’t have enough information to do properly anyways.

The market data division produced GBP22.4mm of EBIT in 2006, and since incremental margins are near 100% in this type of business, I’m assuming that it can produce GBP30mm of EBIT in 2007. Valued at a reasonable 10x EBIT, that is worth GBP300mm.

Electronic business

Using my valuations for the other businesses, that leaves Icap’s electronic brokering business trading at around GBP731mm on a standalone basis at the moment. The electronic business did GBP200mm of revenue and GBP55mm for year-end March 2007, and I am estimating 12% revenue growth and 12% EBIT growth, for March 2008 sales of GBP224mm and EBIT of GBP64mm.

I believe that 3.3x sales and 11.4x EBIT for a fast-growing electronic exchange with first mover advantages in two major markets, plus the ability to expand into new markets, is a reasonable price. In fact, to an acquirer, I believe those are cheap numbers, as Icap’s Brokertec division really is an all-electronic, dominant derivatives exchange, and is raising prices in its core US treasuries business. By comparison (and I’m not at all suggesting Icap would ever get these valuations), these are where some exchange competitors traded at the end of July on consensus Dec 2007 estimates:

ICE (all-electronic futures exchange)

Current TEV: 11.35bb

Sales 07E: 569mm (19.9x)

EBIT 07E: 393mm (28.9x)

Operating margin: 69% (vs 28% for Icap’s electronic division)

NMX (Nymex, hybrid voice-electronic futures exchange)

Current TEV: 12.0bb

Sales 07E: 722mm (17.4x)

EBIT 07E: 434mm (27.6x)

Operating margin: 60%

CME (the merged CME and CBOT, hybrid voice-electronic futures exchange)

Current TEV: 20.4bb

Sales 07E: 1.65bb (12.3x)

EBIT 07E: 916mm (22.2x)

Operating margin: 55%

Traditional futures exchanges tend to have almost all of the volume in the specific contracts they trade, hence the higher margins.

So even saying that Brokertec should trade at 5x sales (to account for its lower operating margins and lower growth than these futures exchanges) gives you a value of GBP1.13mm market value for the whole company of around GBP3.6bb on March 2008 earnings (12% higher than current prices), but if you assume an additional GBP200mm of free cash flow generation by March 2008, then the whole thing should be worth 3.8bb, close to an 18% return. And, if you give Brokertec a 10x sales valuation (still a good deal to any of the above potential acquirers), you are looking at approximately a 50% return. On balance though, I think it’s reasonable to expect a 20% return from Icap, with some possibility of a 40-50% return if a bidding war arises for the electronic division.

Why can Icap grow at these rates?

The above growth rates may seem high, but Icap is the leader in an industry that has normal organic growth rates of 7-9% per annum (and 2007 so far has been a year of higher growth), and Icap dominates the faster-growing electronic portion of the industry. A recent SIFMA (the merged Securities Industry Association and Bond Market Association) survey of European fixed income buy-side traders predicts 15-25% volume growth in electronic trading this year, along with a significant increase in ticket size (and hence commission size) in many products. Our estimates are in line with, or below, analyst consensus estimates.

Bear case:

Company-wide risks

A prolonged slowdown in derivatives trading volume either due to regulation (unlikely) or a prolonged slowdown in the securities business, such as a shift in capital away from hedge funds and prop desks at investment banks; or a derivatives risk control/settlement failure specific to Icap or a major counterparty. Icap reported record June 2007 voice and electronic revenue, so there does not appear to be a slowdown in derivatives trading at the moment.

Icap has a large number of outstanding customer trades at all times, so like all broker-dealers they face significant risk from a major settlement/counterparty failure. However, the NY Fed in 2006 forced dealers to clean up a large derivatives settlement backlog and introduce an electronic settlement system, and many recent efforts such as Swapswire have helped accelerate settlement, so settlement risk should be somewhat diminished.

Voice risks

The risks to Icap’s voice businesses are much faster electronicization than we anticipate, but that should be offset by growth in their higher-margin electronics business. Icap like Tullett is vulnerable to poaching of its brokers by competitors (Tullett recently hired away a key CDS team from GFI Group). In 2005 Cantor Fitzgerald/BGC was a new entrant to the market and took 32 brokers from Icap in Hong Kong. However, as consolidation continues among the interdealers, the opportunities are reduced for voice brokers to job-hop seeking bigger and bigger compensation, as there are fewer employment options.

Electronic risks

My analysis of the sustainable nature of the duopoly could be wrong, or Icap could get too greedy in trying to harvest the duopoly, which could mean that traders fund a 3^rd entrant to keep prices down. It is cheap to start an ECN -- the technology and programming developments costs for BATS were between 5-10mm, although they have raised much more money from Wall Street firms to fund marketing costs.

In a perfectly rational world, it probably makes sense for groups of high-volume traders to form their own essentially non-profit securities markets that attempts to provide ultra-low cost trading but does not attempt to do anything other than break even. However, it is hard in practice for highly competitive, often secretive and idiosyncratic groups of traders to successfully coordinate and manage actions even when such actions are in their favor.

Another negative electronic scenario would be if Icap cannot get traction in electronic markets outside of treasuries and spot FX, which would be especially bad if Icap made value-destroying acquisitions in an attempt to grow into new markets.

Trends favoring growth in derivatives trading volume

Historically there has been high growth in the volume and complexity of the global derivatives market, including in new areas such as securitization/derivativization of property and life insurance risks, and new end users such as pension funds (it was recently reported that UK pension funds have tripled their use of derivatives, off of a very small base).

Basel II capital accords are expected to be an opportunity for the interdealer brokers as commercial banks globally are expected to increase use of derivatives to meet new capital requirements. US regulators just approved the US version of Basel II, which will be applied beginning with 11 major banks in January 2008.

Solvency II standards for European Union insurance companies should boost derivatives trading along similar lines.

A huge amount of global corporate debt is coming due in 2008 and will be refinanced, creating opportunities in bond trading and in credit-linked derivatives.

Catalyst

I think Icap is cheap because it is misunderstood and underfollowed. When the profit and revenue growth of the last few months becomes more widely understood, and as the global derivatives and equities exchanges continue to be acquisitive, Icap is likely to be revalued upwards significantly to reflect the true value of its electronic trading network, either through market recognition or through acquisition.

My base case on Icap is a low end of 20% return, and a high end of 40-50% return, which could be realized by year-end if consolidation continues. In a realistic worst case scenario, Icap’s electronic business turns out to be not worth very much or is in fact a money sink. But, there is some protection from the 2.7% forward dividend yield.

This is, of course, not a recommendation to buy or sell any securities, and we may buy or sell any of the securities mentioned in this writeup at any time.

Catalyst

Icap is cheap because it is misunderstood and underfollowed. When the profit and revenue growth of the last few months becomes more widely undestood, and as the global derivatives and equities exchanges continue to be acquisitive, Icap is likely to be revalued upwards significantly to reflect the true value of its electronic trading network, either through market recognition or through acquisition.