Goldman Sachs sees a year of declines at Thomson Reuters

In the last cycle, net sales at the former markets division now called financial and risk remained negative until 2Q2010, over a year after the deepest job cuts, with organic growth not resuming until 4Q2010, even then at just one per cent year on year, it said.

Given the high level of job cuts announced during the second half of last year and still low return on equity across the sell-side financial services space, “we don’t see a return to positive net sales at F&R in the near term. We factor yoy organic declines for the balance of the year, and see risk of no growth into 2014.”

Goldman identified a rebound of financial services headcount and aggressive asset sales as key risks. It maintained its $25 six-month price target for the stock and rate it a Sell.

The bank said TRI executed a round of job cuts last week, eliminating three per cent of its staff (mostly from F&R) and saving $150 million annually by Goldman’s estimates ($91,000 per employee).

It noted that Thomson Reuters released a new version of its Eikon desktop on 24 January with substantial upgrades to its interface and plans to roll out a new investment management platform by late 2013. “An improved Eikon at competitive prices can be attractive to cost-conscious firms but displacements have a long sales cycle, particularly at large firms.”

Earlier this week Credit Suisse and UBS issued their own pre-results reports. ■