A new commodity supercycle or a transitory burst of inflation? Either way, Marex Spectron hopes to cash in on renewed enthusiasm for raw materials. The commodity broker revealed plans for a London listing on Friday.
Opportune timing should be par for the course from a company working in volatile financial markets. But if the prospects for commodities are so bright, potential shareholders might ask why Marex Spectron founders, and former Lehman Brothers bankers, Jeremy Isaacs and Roger Nagioff would want to sell a stake in their business.
Marex’s expansion away from its core commodity-broking heritage perhaps offers a clue.
The prospects for the main business are dim. Acquisitions to diversify have fuelled growth in recent years, pushing net revenues to $414m last year from less than $250m in 2017. Bolt-on purchases have expanded the group’s reach into derivatives markets such as equity futures and options. Marex even started to offer complex derivatives bets on cryptocurrencies this year.
Its strategy appears a strenuous effort to avoid the inevitable demise of traditional voice brokerage in core commodity markets, avoiding TP ICAP’s fate.
A swollen balance sheet and stagnant top line have kept investors away from TP ICAP. Its shares have halved since 2017. On a similar multiple of 14 times trailing earnings, Marex would be worth about $640m (£460m).
TP ICAP does some commodities trading but focuses more on currencies and interest rate derivatives. The comparison is still apt. Commodity trading has so far been more resistant to automation. But every corner of the industry feels the threat of computers, either to bypass business or cut fees. London’s fading role in European trading presents a further hurdle.
Even if the rise in commodity prices is sustained, brokerage profits are on the wrong trajectory.
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