Numis/Peel Hunt: brokers try to look on the bright side of deal freeze

Stockbrokers in the UK can be forgiven for feeling uneasy when contemplating the year of dealmaking ahead in 2023.

At City outfit Numis, a one-third decline in revenues in the 12 months to September 30 is striking. Yet in the context of sparse equity financings, that decline could have been even worse. The broker’s claim that it is successfully diversifying its business deserves attention.

The London market is exceedingly frosty right now. Equity capital transactions are at their lowest level in a decade. Rising interest rates and geopolitical uncertainty have put a stop to new investment. Balance sheets at many UK companies are full of cash raised in the frenzy of the past two years. Add this to the waning attractions of London as a global listing location and it is little wonder brokers are feeling down.

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Reflecting the chill, Numis shares have halved from last year’s peak. They now trade close to the decade lows experienced at the start of the Covid-19 pandemic.

On the bright side, at least that performance beats rival Peel Hunt, whose shares have lost almost two-thirds of their value over the same period. Last week, the smaller broker said its half-year revenues were down 40 per cent.

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Numis is aided by its lower reliance on UK company financing. A new EU office will complement the existing, albeit small, geographic spread in the US. A bigger slice of advisory revenues, up 26 per cent last year, helps too. Numis is also making good progress on private company financing. It has completed $1.1bn of deals this year.

Uncertainty remains the company’s biggest hurdle. Interest rate risk has made debt pricing more difficult, stifling many financing activities. But the path of rate rises is growing clearer. Memories of the UK’s chaotic “mini” Budget and accompanying market volatility are also fading into the past.

Numis also points out that higher cost of capital for debt should make equity financing more attractive over time. This should provide support for shares in mid-cap brokers — even if the London market continues to disappoint.