Tullett sees signs of upturn after four percent revenue drop in July-Oct

By Clare Hutchison

LONDON (Reuters) - Interdealer broker Tullett Prebon Plc (TLPR.L) reported a 4 percent drop in revenue for the four months to end-October as market conditions remained tough, but said it had seen higher levels of activity in financial markets in recent weeks.

Revenues at companies like Tullett, whose brokers match buyers and sellers of currencies, bonds and swaps, have slumped in recent years due to regulations forcing their investment banking clients to reduce risky trading activities.

They have also been hit by efforts to push more derivatives trading onto electronic platforms to make the market more transparent, while low interest rates have dampened the market volatility which is a key driver of demand for their services.

London-based Tullett said in a trading update on Friday revenue between July and October reached 233 million pounds ($369 million), against 252 million a year earlier. Revenue for the year to October was down 11 percent at 594 million.

Tullett shares, which had risen earlier this week to their highest in more than a month, were down 3.6 percent at 270.9 pence by 1045 GMT, making them among the biggest fallers in the FTSE 250 index of medium-sized stocks (.FTMC).

Recent weeks have seen an upswing in market volatility, however, due to a number of factors including prospects for a potential rise in U.S. interest rates. Tullett said this had boosted activity, particularly in the Americas and Asia Pacific.

Activity in Europe and the Middle East however improved more modestly, it added, due to the further flattening and lowering of "yield" curves, a bond market measure, reflecting Europe's lacklustre economic prospects. The broker said its revenue overall in September and October was unchanged on the prior year.

NOT FOR FAINT-HEARTED

Analysts at brokerage Mirabaud said Tullett's update presented a "reasonable" picture but the stock was "highly correlated with the market and ... Certainly not one for the faint-hearted."

Tullett also said it was under investigation by Britain's Financial Conduct Authority (FCA) in relation to the regulator's probe into manipulation of interest rate benchmarks such as Libor.

"The company continues to cooperate with regulators and government agencies," Tullett said in a statement. One of its former employees was last week charged by the Serious Fraud Office in connection with Libor rigging.

In a note, analysts at Shore Capital kept a "sell" rating on the stock. "Despite the improvement in trading, we believe there remain significant fundamental headwinds to Tullett as a result of increased regulation of the industry and clients.

"This, coupled with the added uncertainty of the FCA investigation, means we retain a negative stance, seeing see fair value at 245p," they said in a note.

The company, whose competitors include ICAP (IAP.L) and BGC Partners (BGCP.O), said it had received all necessary approvals for its planned acquisition of oil brokerage PVM. The deal was expected to complete by the end of November.

(1 US dollar = 0.6316 British pound)

(Editing by Susan Thomas and David Holmes)