Marex IPO: footloose broker resists commoditisation

The traditional job of the broker — matching buyers and sellers — has been migrating to electronic platforms. Not so at Marex. The commodities broker is doing a good job of resisting the commoditisation of its business. This should help it get a long-delayed IPO off the ground.

Marex does not just have to decide when to list. It also needs to decide where. London, where the group is headquartered, should be the obvious choice. The City has traditionally been a magnet for commodities and resources businesses. It has an ecosystem of analysts and investors to go with that. Indeed, London was where Marex had hoped to list in 2021.

That New York is even in the running is a sign of how badly London’s appeal has waned.

Whatever side of the pond it picks, Marex has done much to make itself attractive to investors. Profits before tax, which came in at $122mn, are 2.5 times what they were in 2019. Pressure from automated trading has not compressed margins, which have remained broadly constant at between 15 and 17 per cent of sales.

One reason for strong results is that 2022 was a volatile year for commodities. On top of that, the largest chunk of profits before tax — almost 80 per cent, before corporate costs — came from clearing services.

High interest rates are a tailwind, here, because exchanges pay brokers interest on the margins that they post on behalf of clients. That, plus Marex’s recent acquisition of ED&F Man, means the broker is set for a blowout 2023. Earnings are set to grow from $98mn in 2022 to $160-200mn.

Listed comparables are thin on the ground. Marex is a little like TD ICap. The slower-growing UK broker is on 7 times this year’s expected profits, according to S&P Capital IQ. A better marker might be StoneX, on 9.6 times 2023 earnings. Applying a similar multiple to Marex would yield an equity value in the region of $1.7bn. Clarkson, the shipping broker, is even more highly valued.

A New York listing is less certain to boost Marex’s value than companies with extensive peer groups quoted there.

That said, an equity value of $1.7bn would be nothing to sniff at. This would be more than twice what the broker was hoping for when it pulled its 2021 listing. It would surely be welcomed by private equity owners. After a decade holding the stock, they must be itching for a trade.