Fading Trump effect overshadows NEX revenue growth

By Esha Vaish and Noor Zainab Hussain

(Reuters) - British financial broker NEX Group's (NXGN.L) gave a cautious assessment of its 2017 prospects on Wednesday, with muted January trading volumes casting a shadow over better than expected third-quarter revenue.

Shares in the company fell 4 percent to 551.5 pence after it said that an initial jump in volumes on market volatility after Donald Trump's U.S. election victory had tailed off, with analysts also pointing to a drag on profit from the acquisition of two loss-making businesses.

"Trump did give a big boost to volumes in the last quarter of last year and we're not seen that particularly follow through in January," CEO Michael Spencer said after the Wednesday's trading update.

"It is still too early to assume with any confidence that the previous and prolonged period of subdued market conditions has come to a permanent end."

NEX's like-for-like reported revenue for the three months to Dec. 31 jumped 26 percent, excluding the impact of its acquisition of data analytics platform ENSO and regulatory reporting specialist Abide Financial to bolster NEX Optimisation, its post trade and information services operation.

ENSO and Abide are expected to remain loss-making for up to 18 months.

Interdealer brokers, which match buyers and sellers of currencies, bonds and other tradeable instruments, have benefited from increased market volatility after unexpected outcomes in global politics, such as Trump's victory and Britain's decision to leave the European Union.

However, the sector has long struggled with declining volumes, hit by regulation designed to rein in the riskier trading activities of traditional investment bank clients.

NEX's investment in its optimisation operation was in response to that trend and Spencer told reporters that he does not expect Trump's intention to repeal some parts of U.S. financial reform law to dampen demand for its products.

The company reported revenue at NEX Optimisation up 21 percent rise, beating analysts' expectations, but said that operating margins were being squeezed by investment in new products, acquisitions and a change in the product mix.

Morgan Stanley analysts said that NEX would bring only "muted benefit to profit" from the increased revenue because of the impact of the company's acquisitions.

Liberum analyst Justin Bates offered a similar assessment, saying: "Comments around muted trading in January and ongoing investment had probably dampened spirits a bit."

(Editing by David Holmes and David Goodman)