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Why I’m holding onto TP ICAP plc after today’s update

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Shares of interdealer broker group TP ICAP (LSE: TCAP) rose by as much as 10% when markets opened this morning.

The gains were triggered when the firm — previously known as Tullett Prebon — said that last year’s volatile market conditions mean that 2016 revenue should be 12% higher than the £796m reported in 2015.

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My calculations suggest TP ICAP’s 2016 revenue will now be around £891m, which is significantly higher than analysts’ forecasts of £846m.

Big changes underway

Today’s figures from TP ICAP only refer to the old Tullett Prebon business. But the group has recently acquired the broking business of UK rival ICAP (now known as NEX Group). The integration of these two businesses is now moving “swiftly” ahead, and TP ICAP will provide expected performance figures for the combined businesses in March.

In my view, TP ICAP is a good example of a business that’s adapting to changing circumstances, and defying gloomy predictions about its future. The group has addressed the inevitable decline in its voice broking business by expanding into energy trading and acquiring the ICAP broking business.

So far, TP’s major acquisitions have been well timed. Rising interest rate expectations should boost trading in some of the group’s core products, such as interest rate derivatives.

TP ICAP has beaten expectations over the last year, but the shares still look cheap to me. The firm trades on a 2017 forecast P/E of 12.4, with a prospective yield of 4%. I believe further gains are possible, and continue to hold this stock in my own portfolio.

Don’t bet against this bank

Asia-focused bank Standard Chartered (LSE: STAN) has been slow to recover from a prolonged downturn. But there are signs that the group’s performance is starting to improve.

In November, Standard Chartered reported a 5% fall in loan impairments during the third quarter. Underlying pre-tax profit was $458m, compared to a loss of $139m for the same period one year earlier.

Standard Chartered’s Common Equity Tier 1 (CET1) ratio of 13% is at the upper end of its target range. The group’s return on equity — a key measure of profitability — turned positive during the first half of last year, and a full-year profit of $597m is expected for 2016.

Looking ahead at 2017, rising interest rate expectations should help to improve returns. The bank’s profits are expected to rise by 175% to $1,647m this year. Consensus forecasts suggest that adjusted earnings will rise by 135% to $0.50 per share.

The current share price of 688p puts Standard Chartered on a forecast P/E of 17, with a prospective yield of 2.5%. This may seem expensive, but profits remain a long way below historic levels and I believe further increases are likely.

The shares also trade at a discount of more than 30% to their tangible book value. If the bank can continue to reduce its bad debt levels, this discount should gradually shrink.

In my view, a medium-term price target of 900p isn’t unreasonable. I plan to continue holding.

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Roland Head owns shares of Standard Chartered and TP ICAP. 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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