By Daisy Ku
British interdealer broker Tullett Prebon said continued market turbulence would lead to "a good outcome" for the year after it reported a better than expected 26 percent rise in its first-half pretax earnings.
Chief Executive Terry Smith said volatility remains 60 percent higher than pre-crisis levels, although it has come down since its peak after Lehman Brothers collapsed. Fluctuating markets drive up trading volumes, boosting interdealer-broker revenues.
"The growth driver is still primarily volatility," Smith told Reuters in a phone interview.
"In the weeks after the Lehman collapse there was intense volatility which won't be repeated. The results won't look as good in terms of growth against the second half last year," he added.
The world's second-biggest broker between banks made an adjusted pretax profit of 92.8 million pounds ($157.2 million) for the first six months, up from 73.9 million pounds a year earlier, and adjusted earnings per share (EPS) of 28.5 pence.
Analysts were expecting pretax profit of 78.9 million pounds and adjusted EPS of 22.25 pence, according to Reuters Estimates.
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Daniel Garrod, an analyst at Citigroup, said Tullett had been more disciplined than the market expected in controlling costs. Costs rose 8 percent from a year earlier while revenues increased 11 percent.
Tullett shares were up 2.97 percent by 1112 GMT. They have risen 164 percent this year, beating bigger rival ICAP, whose shares rose 57 percent over the same period.
At 370.7 pence each, Tullett trades at 9.7 times 2009 EPS of 38.08p, at a 31 percent discount to ICAP's 14 times.
This is partly due to concerns about Tullett's competitive position amid reforms in the over-the-counter markets.
With U.S. and European regulators pushing for off-exchange derivatives trading to move to electronic trading with central clearing, some analysts see Tullett Prebon lacking the electronic broking or post-trade capabilities needed to benefit from the changes.
Smith, however, said it was too early to predict the impacts.
"When it comes to CDS (credit default swaps), we are far more advanced than ICAP," said Smith, referring to the tpCREDITDEAL platform for electronic CDS trading in Europe, which captures a market share of about 30 to 35 percent.
The electronic business made 70 million pounds in revenue, accounting for 13.5 percent of the group's total.
Tullett's electronic business also includes energy, repo and agencies electronic trading in North America, and a global foreign currencies electronic trading platform.
Smith said Tullett could launch new electronic platforms as and when the market requires.
The group's result also benefited from a 20 million pound cost-cutting programme introduced in the fourth quarter of 2008.
In the six months, Tullett reduced staff by 70 to 2,500. Smith said there were no plans for further job cuts.
