For Income Investors:
BGC Partners Inc. |  - Co. Spotlights available via RSS feed
| | A 10% Yield |  
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Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk. | | BCGP | $7.00 | Why It's Featured: Good growth in one year; high dividend.
Keep an Eye On: Diversifying too far away from its core business. | Dividend Yield | 10% | | Dividend/Earnings | 100% | | Financial Strength | B | | Div. Date: late-Nov | Ex-Div: early-Nov |
July 26 2011 - BGC Partners, Inc. (BGCP-NASDAQ) operates as a financial intermediary to the financial markets specializing in the brokering of various financial products. It provides electronic marketplaces, including government bond markets, spot foreign exchange, foreign exchange options, corporate bonds, and credit default swaps in various financial markets through its eSpeed- and BGC Trader- branded trading platform which can be accessed through its high speed data network, over the Internet, or third party communication networks.
The company's brokerage services include trade execution, broker-dealer services, clearing, processing, information, and other back office services, as well as cover various products, including fixed income securities, interest rate swaps, foreign exchange, equities, equity derivatives, credit derivatives, commodities, futures, and structured products.
It also provides financial technology solutions, market data, and analytics related to financial instruments and markets. In addition, the company offers customized screen-based market solutions, which enables clients to develop a marketplace, trade with their customers, issue debt, trade odd lots, access program trading interfaces, and access its network and intellectual property.
Further, it licenses intellectual property portfolio and software solutions to various financial markets participants; and provides software development, software maintenance, customer support, infrastructure, and internal technology services to support electronic trading platforms. The company serves banks, broker-dealers, investment banks, trading firms, hedge funds, governments, investment firms, professional trading firms, futures commission merchants, and other professional market participants and financial institutions in the United States, the United Kingdom, France, Asia, Europe, Africa, the Middle East, and other Americas. The company was founded in 1999 and is based in New York, New York.
Management at BGC Partners has been busy. It keeps pushing the firm toward a fully electronic platform that will increase its already strong interest-rate derivatives trading. Along with that effort, it recently raised about $160 million in convertible senior notes, some of which will go toward the $150 million commitment for technological improvements. Last year, it combined with Mint Partners to expand its international presence.
Through it all, earnings have continued to grow, going from 39 cents in 2009 to 67 cents in 2010. This year, 5 analysts have a consensus estimate of 77 cents. For 2012, look for 82 cents. For the third quarter (earnings will be out on October 27), expect 19 cents (vs 17 cents in '10). For the final period, expect 16 cents compared to 17 cents last year. Over the last 5 years, earnings grew, on average, 56% a year. For the next 5, analysts think 12.5% growth on average annually is more likely.
Increased trading in Equities and Foreign Exchange was the main driver for the better first half of the year numbers. Expect more efficiencies as the company continues to move toward all technology platforms. The company is also looking to move into real estate with an impending purchase of Newmark Knight Frank's U.S. businesses (it's a real estate advisory firm with headquarters in London). This is the company's first foray into real estate and some investors wonder if this is a natural extension for management to pursue. One reason for the acquisition may be for BGC's largest shareholder Cantor Fitzgerald & Co. which was an early entrant into the fledgling commercial mortgage backed securities market (CMBS). It could give Cantor better information on the market as well as increase business flow. Howard Lutnick, since 2009, has served as chairman and CEO of BGC and as CEO of Cantor Fitzgerald.
As Mr. Lutnick described the growth over the last 5 years and explained his rational for buying Newmark: "In financial services brokerage over the last five years, we have added more than 1,000 brokers, grown revenues to over $1.3 billion, massively invested in our world-class proprietary technology, and increased our distributable earnings margin hundreds of basis points. We will use the same strategies to position Newmark for dramatic growth."
Part of the funds raised by the recent debt offering could be used for more acquisitions. Or it could be spent on expanding by hiring more employees. Or it could be earmarked for shareholder returns by increasing the dividend. Or it could be used to buy back shares.
Clearly, management has grown the company and paid a good dividend at the same time. It appears to be on track to continue both. With new funds and new markets, it has the flexibility to pursue diverse endeavors. What many investors wonder is whether this new real estate effort is the right direction. It may be why the stock has given up some ground from $10.10 which it traded at earlier this year.
Essential Numbers:
- Market Cap: $869.04 million
- Trailing P/E: 19
- Forward P/E: 8.6
- Price to sales: .61
- Price to book: 2.90
- Operating margin: 7.7%
- Profit margin: 2.67%
- Return on equity: 18%
- Return on assets: 4.6%
- Revenues (last 12 months): $1.36 billion
- Total cash: $302.7 million
- Cash per share: $2.46
- Total debt: $186.5 million
- Total debt./equity: 41.3%
- Current ratio: 1.26
- Book value per share: $2.31
- Beta: 1.61
- 52-week change: -4%
- Shares outstanding: 123.09 million
- Float: 67.91 million
- Held by insiders: 6.4%
- Held by institutions: 58.1%
- Annual dividend: 68 cents
- Yield: 10%
Income investors may get a bonus here: capital growth. This company is on track to increase earnings. Part of those will be used to fund the generous dividend. But some will be used for technology and new markets. And that dividend could be raised as well. For the last 3 years, it's gone from 23 cents to 30 cents to 48 cents to the current 68 cents. It's hard to find income growth like that in this market.
- Company Web site: www.bgcpartners.com - Ted Allrich |
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