City stockbroker Cenkos suffered a 90 per cent drop in pre-tax profit in the first half of 2018 and has cut its interim dividend by more than half, as tough new European markets rules begin to squeeze the sector.
Cenkos, which offers broking and advisory services to small and mid-cap companies, said pre-tax profit on continuing operations plunged from £4.6m to £500,000 in the six months to the end of June.
The Aim-listed broker said this was partly because its 2017 results had been boosted by its role in a bumper fundraising for logistics group Eddie Stobart, while the pace of fundraisings was “slow” in the first quarter of 2018. Shares fell as much as 12 per cent on the news, before settling down 7 per cent at 91.3p.
The poor results came after it emerged on Monday evening that Spanish bank Banco Santander had been in early talks to buy privately owned UK broker Peel Hunt. One person close to the talks said there was “an ongoing discussion”, which was in the “preliminary stages”.
This would be the first big deal in the sector since the Mifid II EU regulations came into force at the beginning of the year.
Under the rules, banks and brokers must charge asset managers separately for investment research, instead of including the cost in fees for executing trades.
This has prompted many asset managers to cut back on the research they receive, squeezing brokers’ research revenues. Data show that Mifid II has hit trading commissions this year, leaving small brokers more reliant on deal fees and prompting speculation about consolidation.
Cenkos said on Tuesday that Mifid II had reduced its revenues from research and commission by 12 per cent. Overall, its revenues fell 38 per cent to £18.1m and the interim dividend was cut from 4.5p to 2p.
Activist investor Richard Bernstein, founder of Cenkos’s fifth-biggest shareholder Crystal Amber, has been agitating for a strategic review with a view to selling all or parts of the brokerage.
Anthony Hotson, chief executive of Cenkos, said that the company had started “a strategic review of our front and back-office capabilities . . . together with a review of the markets we serve”.
At the beginning of August, it announced plans to acquire the broking business of UK investment manager Smith & Williamson, and recently closed its Singaporean office.
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