October 3, 2011 12:14 pm

Charles Stanley blames volatility for profit fall

There were signs of a divide in the stockbroking sector on Monday as shares in Charles Stanley fell almost 9 per cent on poor trading news, while a more upbeat statement from Numis pushed its shares up 1 per cent.

Charles Stanley said that profits for the six months to September were down on the same period last year. It blamed volatile stock markets in the past two months “in the face of increasingly strong macroeconomic headwinds”. It said that this had dragged down commissions and corporate finance fees at its securities arm.

Group revenue was about the same as in the previous period, thanks to improved turnover in the private client and financial services divisions, which make up the bulk of the business.

But the weakness in the smaller securities arm and rising costs, combined to bring earnings down from the pre-tax profit figure of £7.3m in the six months to September 2010.

However, the company maintained a bullish outlook for the full year, saying: “Whilst it is difficult in these market conditions to see very far ahead, the group continues to see the opportunity for growth year on year.”

A person close to Charles Stanley said the securities division was proving a “drain on resources”. The group was trying to cut costs in the division but aimed to do this without compulsory redundancies. Five people had left the division in the past quarter, including two senior employees, and had not been replaced.

However, he said that there were signs of “green shoots” for the securities business in the second half of the financial year, with the possibility of work on several Aim flotations.

Stuart Duncan, an analyst at Peel Hunt, said that the securities division could be seen as distracting the management from the core private client business but did not expect the company to dispose of it. “These businesses don’t tend to consume that much capital and in good years they make a decent return,” he said.

Meanwhile, fellow stockbroker Numis was more upbeat, saying that its revenues in the same period were up 45 per cent year on year. Its securities business had been helped by involvement in 14 equity issues and increased work on mergers and acquisitions.

Oliver Hemsley, chief executive of Numis, said that the company had reaped the benefits of a restrained approach last year when some rivals went on a hiring spree. “We run a tight ship,” he said. “The big banks doubled or trebled salaries to retain staff . . . I think people realised that that’s not the route to go down.”

Mr Hemsley added that he expected an increase in M&A activity over the next year, saying that there was “certainly money available”.

Shares in Charles Stanley closed down 23p at 245p, while Numis shares rose 1.1 per cent to 90p.

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