ICAP slumps on Morgan Stanley downgrade

LONDON (ShareCast) - (ShareCast News) - ICAP (LSE: IAP.L - news) shares slumped after Morgan Stanley (Xetra: 885836 - news) downgraded the stock to 'underweight' from 'equalweight' and slashed its price target to 270p from 433p. MS said its analysis suggested challenges for inter-dealer brokers to sustain mid-teens earnings per share growth and revealed around 5 to 10% downside risks to consensus estimates.

As far as ICAP is concerned, the bank said optimism around EBS Direct, US tapering and M&A/corporate restructuring appears misplaced.

"Our analysis suggests the market over-estimates the opportunity from EBS Direct, with competition intensifying, services becoming commoditised and prices likely to fall further," said MS.

The bank also said the stock's rating appears rich, trading at a premium of around 20% versus its long-term historical average and the risk/reward is skewed to the downside.

Morgan Stanley downgraded its earnings per share forecasts, saying it expects ongoing structural challenges for voice broking revenues, whilst the disposal and closure of other business lines, such as shipping, first brokers and commodities, offsets its high single-digit revenue growth across electronic and post trade.

It cut its EPS estimate for 2015 to 30.1p from 32.1p and for 2016 to 31.6p from 34.8p.

At 0936 BST, ICAP shares were down 5.6% at 473.30p.