Thursday 7 March 2013

Portfolio Buy: Tullett Prebon (LSE:TLPR)

My recent profit-taking from selling fixed-interest bonds has left me with cash sitting idle. However, a burst of diversification from Sterling has had to be put on hold due to the fall in the Pound. And I don't really want to invest in fully-priced bonds.

So logic leads me back to high-yield dividend shares, like Tullett Prebon - which is currently yielding over 6%.

But high yield is almost always associated with problems - this is where you need to do your research and make a judgement: is the 'problem' terminal or are things going to get better.

Tullett Prebon operates as an intermediary in wholesale financial markets facilitating the trading activities of its clients, in particular commercial and investment banks through its electronic broking solutions. In addition to its brokerage services, Tullett Prebon offers a variety of market information services through Tullett Prebon Information.

Their Preliminary Results for 2012 are not good. Almost every metric you can think of compared with the previous year is negative. In particular, the company has revealed a loss, due to several exceptional items, including a large 'goodwill impairment' (i.e. its businesses are not worth what it paid for them); this may be preparation for a sale of part of the business.

There are more difficulties facing the company, notably on-going litigation and changes to OTC (Over The Counter) market regulation.

So why buy?

The first consideration is whether the company business model is still viable. The key problem seems to be the difficult market conditions and the company says that it has performed better than its competitors, in terms of profit margins. The company is continuing to invest in its electronic platform. The expected (and perhaps apparent) Great Rotation from fixed-income to shares should help.

Secondly, the final dividend is being retained (or at least that is being recommended to shareholders), with a modest increase over the previous year - and there is no announcement of a change in dividend policy.

Third, there is geographical diversification. A significant proportion of the group’s activity is conducted outside the UK and the reported revenue is therefore impacted by the movement in the foreign exchange rates. The Group does not hedge its currency risk, so a fall in the Pound in 2013 will therefore hopefully provide a positive impact.

Finally: there is a cash pile - at the end of the year is over a quarter of a billion pounds, although down from the third of a billion pounds in the previous year. Overall, financing looks reasonably robust.

 So, there are some reasons to hope that the poor performance of 2012 can be reversed in 2013.

[Purchase price: £2.825]

Update 22/4/13: More on the BGC lawsuit in the US; and here (dated January 2013).

On the basis that TLPR is going ex-div in a couple of days, coupled with the fall in price - but apparent current uptick - I have added to my holding - making it my largest dividend share position.

[Purchase price £2.585]

Update 17/7/13: This additional holding has now been sold.

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. This is Tullet "Under LIBOR investigation" Prebon we are talking about here, whose recent 80m bond issue is trading just below par. For me the additional risk of regulatory fines (which we know have been large) sways me to say, not this one.

    1. Hi Tulip,

      That may be overstating it: as I understand it, they are not under active investigation but may be caught in the 'crossfire', as you say.

  2. These are on my watch list and the price has risen from 240 to 275 ish in a month yet the reports and news are negative. Maybe the rise is on the back of a strong market and could fall back with it.

    Then again the bad news is out and could be "priced in" The positive is the high yield low P/E and should comfort you should any drop occur providing it can be maintained. They say "be greedy when other are fearful"

    For me it stays on my watch list a little bit longer but think in the longer term that you will be ok


  3. Well they are off my watch list after putting a toe in at just over 251p. (on 15/4) With a plan to avg down if the price falls over the summer (Sell in May??) or general market correction/ Korea concerns etc

    The bad new is out and there could be more upside than down from here with a good yield whilst riding out the dips.

    My plan my be thwarted if the follow 450p takeover rumor is true. Decisions! Decisions!