commodity dealer tests London’s mettle

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Commodity businesses are well-versed in the laws of supply and demand. London-based Marex, which serves markets in agriculture, metals, energy and financial derivatives, has thus settled on New York for an upcoming share sale.

The broker said it had submitted drafts for an IPO to the Securities and Exchange Commission on Friday. On the same day, bookie Flutter confirmed plans for an additional New York listing.

Marex first mooted plans to list in London back in 2021 at a sub $1bn valuation. It has since diversified away from commodity brokerage with the acquisition of ED&F Man last year. The deal expanded Marex’s geographical footprint. In the US, which now makes up at least half of revenues, it is a top 10 futures dealer. Bringing the balance sheet into play makes the business substantially more profitable but also carries greater risks. 

Return on equity was 28 per cent in the first half of this year compared to 18 per cent over the 2022 period. The former equates to $91mn of profit after tax. Double that for the full year and add on some growth. That points to an equity valuation in the range of $1.8bn. New York-listed Stonex, which is bigger but with lower returns, trades on 9 times forward earnings. 

Stock market investors on both sides of the Atlantic struggle to assign much more than single-digit earnings multiples to businesses that are basically financial black boxes. Marex has so far demonstrated an ability to grow profitably with successful acquisitions. But risks to its $16bn balance sheet are difficult to measure for outside investors. S&P puts the group’s risk-adjusted capital ratio at about 12 per cent, less than most banks core capital.

Losses in commodity markets can sometimes be large and sudden as nickel traders in London found out last year. Volumes in nickel are now gravitating towards their biggest user China. Marex appears to be staking its future on US securities markets that are more insulated. A deeper pool of specialist investors adds to the list of reasons why a New York ticker makes sense.