Thomson Reuters: What Happens If FXMarketSpace Fails?

It seems Thomson Reuters Corp.'s (TRI) attempt at entering the online foreign exchange market is about to fail.

UBS Investment Research analyst Jeffrey Fan expects the company will soon abandon electronic trading platform FXMarketSpace, a joint venture with CME Group launched in 2007 to grab a share of the C$2-billion in commissions available on the foreign exchange market.

Mr. Fan said:

DJ Newswire reports state that volumes fell short of targets and the joint venture stopped reporting volumes at the end of last year.

The company's website announced it would stop publishing daily trading volumes in 2008 for competitive reasons.

While Thomson Reuters's share of the losses is predicted to be less than C$10-million, Mr. Fan believes previous consensus forecasts have assumed an associate contribution of up to C$50-million each year. If FXMarketSpace does shut down, there is a chance analysts will downgrade the company's expected earnings per share [EPS].

For now, Mr. Fan is maintaining a "sell" position on the company and keeping his original 12-month share price target of $28. UBS made its predictions based on 17 times the 2009 EPS of $1.87.

Mr. Fan said:

We are concerned about the downside risk to markets, and the full impact of investment banking job losses is yet to hit.

He noted that for every 1% revenue change in Thomson Reuters's Markets division, the group EPS would take a 3% hit.

Thomson acquired Reuters in April 2008, creating a Markets division focusing on financial information and a Professional division maintaining the company's non-financial business.