A weak pound makes this stock even more appealing

This company’s future is even more positive due to sterling’s weakness.

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Financial services company Tullett Prebon (LSE: TLPR) said its third quarter was given a major boost by the weaker pound. It reported a rise in revenue of 15%, of which 11% was down to sterling’s weakness. And with the pound set to weaken yet further, now could be a great time to buy it.

Tullett Prebon generates 60% of its earnings in US dollars, so the pound’s 15%-plus drop versus the greenback since the EU referendum has been a major positive for the company. However, even when the impact of the falling pound is excluded, the firm was able to increase its top line by 4% in the quarter, while its revenue in the first nine months of the year was 7% higher than in the same period of the previous year.

Tullett Prebon has also benefitted from the above average volatility that has been a key feature of financial markets in recent months. Its acquisitions have also positively impact on its revenue, with its Energy and Commodities division recording a rise in revenue of 10% at constant exchange rates. And with the company making progress towards its acquisition of the hybrid voice broking and information part of ICAP, its medium-term outlook is upbeat.

In fact, Tullett Prebon is expected to deliver a rise in earnings of 1% in the current year, followed by further growth of 12% next year. This shows that the company is moving in the right direction after five years of falling earnings. Its share price doesn’t yet appear to factor-in the improved outlook for the company, since it trades on a price-to-earnings growth (PEG) ratio of 0.8. This indicates that it has a wide margin of safety as well as significant upside potential.

Good track record

However, Tullett Prebon isn’t the only appealing stock in the financial services sector. Wealth management company Henderson (LSE: HGG) trades on a price-to-earnings (P/E) ratio of 12, which is only slightly higher than Tullett Prebon’s P/E ratio of 11.7. However, Henderson has a more stable track record of earnings growth, with its bottom line having risen in four of the last five years. This shows that it may have a lower risk profile than Tullett Prebon and could be less volatile in future years.

Furthermore, Henderson has a higher yield than Tullett Prebon, with the former’s yield being 4.7% versus 4.4% for Tullett. Both companies have scope to raise dividends at a faster pace than profit in future, since Henderson’s dividends are covered 1.7 times by profit and Tullett Prebon’s shareholder payouts are covered 1.9 times by profit. Therefore, either would make a sound income investment over the medium to long term.

However, with Tullett Prebon likely to benefit from volatility in financial markets to a greater extent than Henderson, it seems to be the superior buy ahead of the US election and a potential US interest rate rise.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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