Nex Group share price surges as it looks towards pick-up in volatility as revenues rise and US tax cut adds boost
Financial trading infrastructure firm Nex Group today said a pick-up in foreign exchange trading in January and a boost from US tax cuts may boost future earnings.
Group revenue rose by three per cent on a constant currency basis in the three months to the end of December compared with the same period last year, but revenue in the markets division fell by 10 per cent year-on-year amid becalmed markets, the company announced today.
However, the group also said its effective tax rate will fall because of US tax changes, providing a boost after a first-half warning on profits from its optimisation business. Operating margin improvements in the optimisation arm are on track, Spencer added.
Read more: The chief executive of Nex Group’s Optimisation unit has resigned
Shares in the group rose by more than eight per cent at the time of writing.
Michael Spencer, Nex Group chief executive, said: “Since the beginning of January, our markets have been noticeably more active as FX volatility has increased from historic lows.”
However, he warned that it was too early to say whether the increase in foreign exchange volatility signals the start of a new period of volatility across other asset classes.
The US administration’s recent dollar policy was behind the currency trading boost, Spencer said. Treasury secretary Steve Mnuchin last week said the weak dollar benefits growth, sending the dollar tumbling. If similar movements are spurred by the White House it will keep Nex trading volumes “very buoyant”, Spencer said.
Read more: Nex Group reports 10 per cent rise in revenue sending shares higher
He also pointed to the group’s large volumes in repo trading, in which government bonds are used as collateral for lending, as an important source of growth for the business. US and European repo average daily volumes rose by 17 per cent year-on-year in January to more than $500bn (£352bn).
Revenues in Nex’s optimisation business, which streamlines company processes, rose by 10 per cent amid cost-cutting, while Nex’s new regulatory reporting product in response to the introduction of the new Markets in Financial Instruments Directive (Mifid II) has signed up 380 new contracts, expected to bring in £10m in revenues per year.
Spencer, a prominent Conservative party donor, said he is in favour of the UK “peeling parts of it [Mifid II]” back after Brexit. He called the regulation “materially overengineered”, although did acknowledge that some parts of it are welcome.
Meanwhile, he reiterated that the company will only move around “half a dozen” staff to Amsterdam after Brexit, saying the upcoming trade negotiations will not have an impact on Nex’s plans.
Read more: Michael Spencer blasts “dangerous” EU calls to prise euro clearing from UK