Icap boss savours inflation

WHILE the rest of the financial world gets into a flap over a return of inflation, Michael Spencer is rubbing his hands in glee.

His broking firm ICAP is the leading trader in money market derivatives. When inflation and interest rate expectations gyrate, his trading volumes soar.

Chief executive Spencer admitted he had 'concern' a year ago about the threat of deflation and 'low and stable interest rates'. Now, as so often happens, financial opinion has swung to the other extreme.

Amid alarm over rising prices on both sides of the Atlantic, money markets are predicting UK interest rates rising to 5.5% within two years and US rates quadrupling from their record lows to 4.25%.

Spencer predicts 'further upward pressure' on the forecasts as the global economic recovery continues.

ICAP's underlying profits rose 38% last year to £170.2m pre-tax, helped by growing volatility and the BrokerTec acquisition.

The group also benefits from the recent swings in currencies and oil, as it trades derivatives in those markets too. The business is small but growing fast. The company is eyeing further acquisitions.

Dividends rise 23% to 7.4p. They are worth £5m to Spencer, whose 11% stake is valued at £173m.

At 272p the shares look cheap on 14 times likely earnings, yielding 3%.