Britain's biggest spread-betting firm IG Group has met forecasts with a 40% rise in full-year profits as increased financial market volatility encouraged clients to place more bets.
IG said pre-tax profit for the year to May 31 was almost £97m, up from £69m the previous year.
IG said higher business volumes after the credit crunch developed helped lift revenue for the year by 51% to £184m. Spread bets allow investors to profit from falling as well as rising prices.
Revenue in the year to end-May rose 51% to £194m from £122m a year earlier, representing a quickening in the revenue growth rate, which over the last ten years has run at a compound annual rate of more than 40%.
UK-based revenues grew 46% to £123.2m, while mainland Europe saw growth of 73% to £20.4m.
Asia Pacific delivered growth of 115% to £27.4m.
Pre-tax profits rose 41% to £97m from £68.9m, but the EBITDA margin eased to 53.5% from 57.7% the previous year.
The company’s spread betting and CFD businesses attracted 41,000 new account holders during the period, up from 22,5000 the year before.
The sport betting arm saw revenue slide 5.5% to £11.5m, with the previous year’s revenues having benefited from the FIFA World Cup in 2006.
 |
|
 |
|
IG Group Plc, which takes wagers on financial markets under the IG Index name, said full-year sales rose more than 50 percent after share-price turbulence prompted more gamblers to open accounts.
Sales climbed to about 184 million pounds ($360 million) in the year through May from 122 million pounds in the prior period, the London-based company said today in a statement. IG fell 2.6 percent, the most in two months, in London trading after saying higher costs will crimp profitability.
Sharper price movements in equity markets tend to spur bets, according to IG, which was started in 1974 so speculators could wager on the price of gold. The Standard & Poor's 500 Index has climbed or dropped at least 1 percent in 42 sessions so far in 2008. U.K. gamblers opened more than 2,000 accounts in each of the last five months to place so-called spread bets.
'Account openings have remained extremely strong,' Gurjit Kambo, an analyst at Numis Securities in London, said in a research report. IG probably will meet the securities firm's estimate of 20 pence in per-share profit for the year, and Numis may raise its earnings prediction for the current financial year by between 5 percent and 10 percent, he said.
Costs have advanced because of expansion, said IG, which opened French, Spanish and U.S. units during the year. An increase in betting duty to about 6 percent of sales from 3 percent a year earlier also will hurt the margin for earnings before interest, taxes, depreciation and goodwill, which will shrink by 4.7 percentage points to 53 percent, the company said.
IG dropped 10 pence to 380 pence, posting the biggest percentage slide since April 3. The stock's decline extended this year's drop to 6.2 percent and cut the company's market value to 1.24 billion pounds ($2.4 billion).
The Chicago Board Options Exchange Volatility Index, a benchmark for the cost of protecting against declines by the S&P 500, has climbed as high as 37.57 this year after closing 2007 at 22.50.
A gambler who places a spread bet pays or receives money for every point by which a stock or commodity's price, an exchange rate or an interest rate deviates from a specified range. Wagers also can be made on options and share indexes.
IG first became publicly traded in 2000, was taken private in 2003 by buyout firm CVC Capital Partners Ltd. and managers, and returned to the stock market in 2005. The company is scheduled to release its annual figures on July 21.
IG Group, which is the largest UK provider of financial derivatives such as spread betting, is a company very much on a roll. Founded in 1974 by leading Conservative party donor Stuart Wheeler, IG Index originally provided clients with the opportunity to by-pass strict exchange controls and place bets on the price of gold. It followed this up by offering to take bets on the old FT30 (predecessor to FTSE-100) in 1982 and by the time it pioneered the idea of spread betting on individual publicly traded shares through its IG Index brand, it was well on the way to becoming a very profitable company. Helped by a number of aggressive advertising campaigns, IG has seen its turnover increase from £33.5m to £89m in the last four years, while pretax profit has soared from £13.3m to £51.1m.
IG Index's financial spread betting operation (61% turnover) offers punters the ability to speculate on a wide range of financial instruments, including individual stocks, market indices, commodities, interest and exchange rates. The way it works is that IG quotes a spread, based on the underlying live price, for example FTSE 100: 5850 – 5860. Clients place a bet of say £20 a point and choose between going "long" in which they will make money if the FTSE rises above 5860 or going "short" in which they will enjoy gains if it falls below 5850. If they correctly call "long" and the FTSE rises to 5880, they will make a profit of £400 (£20 x 20 points) before dealing costs. Spread betting is particularly popular because any gains are exempt from capital gains tax and they can also use leverage, through borrowing part of the underlying investment but receiving the whole gain if their bet moves the right way.
As well as making money from a client's losing position, IGIndex also generates fees from the spreads (which may be wider than the underlying commodity) and through keeping the interest on client's deposits. Unlike traditional casino operators, IG Index will never take a beating from a lucky high roller because it is able to hedge exposure to client's positions through trading in the underlying security or related instruments. Even in the highly volatile trading conditions in May 2006 it didn't post a loss-making day and the fruits of its effective risk management system are borne out by the incredible group operating profit margins of 54%.
Not surprisingly, IG Index's success has attracted a host of me-too operators into its space, including CMC Markets (turnover: £76m), Cantor Index, City Index and IFX Group, each making around £25m. IG Index has kept its nose in front by regularly launching new innovative products, including contracts for difference (17% revenues), which are similar to financial spread bets but have no fixed expiry date, sports spread betting and binary betting. IG Index has also made encouraging progress internationally with its first overseas office in Australia (10% of revenues) and has just opened in Singapore, with Ireland and Germany likely to be next.
City betting firm IGIndex was yesterday poised to go private after major shareholder Stuart Wheeler agreed plans to sell his stake in the firm he founded.
Mr Wheeler's 24pc holding is expected to net him £34m after managers - headed by chief executive Nat le Roux and backed by private equity firm CVC Capital - offered 255p a share, valuing IG at around £143m.
The 67-year-old previously said he would use the cash gained from the sell-off to fund the refurbishment of his 17th-century manor house in Kent.
The agreed price represents a premium of 40pc to the closing price of 181.5p a share on the last day before Mr Wheeler's January announcement that he planned to dispose of his interest in IG.
IGIndex, the spread betting firm, which offers punters the chance to wager on financial markets, house prices and sports, said its independent directors had concluded the offer represented the most attractive means of realising value for shareholders.
Several bidders were reported to have been circling IG between the sale being announced and the firm going into exclusive discussions with CVC and the management bidders.
Poker-playing millionaire and Old Etonian Mr Wheeler is best known for his £5m donation to help the Conservative Party fight the 2001 General Election.
Reporting full-year results to May 31, IG said turnover had risen 20pc with pre-tax profits of £15.3m.
Spread-betting specialist IG Group reported a strong rise in profits - in its maiden full-year results since returning to the market at the end of April - helped by a 23 per cent rise in the number of clients. More than 85 per cent of all financial deals are now transacted on two electronic platforms, compared with 20 per cent at the beginning of 2003. Internet clients are easier to recruit and tend to trade more frequently. Income per client rose by 2 per cent to £2,387.
Business was especially brisk in Australia, where turnover jumped 165 per cent to £3.8m, and now accounts for around 6 per cent of group turnover. The contracts-for-difference business (CFDs) performed strongly, too, helped by development of the L2TM direct-market-access dealing platform for clients. Turnover in financial binaries rose by 130 per cent, and this has been identified as the fastest growth area of the business. In short, this form of betting means that a client can back or lay off a fixed-odds bet before settlement, enabling the whole position to be closed out at an early stage if required.
Numis Securities is forecasting pre-tax profits of £39.6m, adjusted EPS of 8.3p and a dividend of 4.1p for the year to May 2006, rising to profits of £45.1m, EPS of 9.4p and a dividend of 4.7p the year after.
IG GROUP (IGG) Share price: 149pSpread-betting firm IG Group, confident about its full year as it continues to add customers, said on Friday it hoped to launch a new service for the sports market before the World Cup next June.
IG shares which had risen 5.6 percent this week, were down 3.95 percent at 170 pence by 10:11 a.m.
IG, which allows investors to speculate on currencies, interest rates, shares and indexes, said all its businesses had delivered growth in its first half, the six months to November 30.
"Since the last trading update, the group has continued to experience strong volumes," IG said in a statemen.
IG said its main British financial operation achieved strong growth, "driven primarily by continued high levels of client recruitment", while its Australian business also grew rapidly.
Numis Securities, which rates IG shares a "hold" with a 160 pence target, said the company had clearly made good progress during its first half. "However, given the potentially volatile nature of the business on a month-by-month basis it would be premature to upgrade forecasts just yet."
Plans to offer contracts for difference and foreign exchange trading from a new Singapore base are on track for a January start. "This office is unlikely to contribute materially to the profits of the current year, but is an important step in establishing a presence in Asia and broadening IG's international reach," it said.
IG also said it plans to offer a simplified form of binary betting for the sports market by May. It gave no further details.
Binary betting is a form of fixed-odds betting and thus has limited risk and limited reward, unlike spread betting. Prices are quoted between 0-100 instead of, say, 2/1 or 3/1.
A typical bet would be on whether the FTSE 100 index will close higher on a given day. Unlike spread betting, the number of points the index actually rises or falls is immaterial.
IG was refloated in April at 120 pence per share, having been taken private by its management in 2003 in a 143-million-pound deal backed by private equity firm CVC.
In July, it reported a 40 percent rise in underlying annual profit to 35.1 million pounds for the year to end-May.
IG shares have outperformed their sector by 14 percent since their Apr. 28 flotation.
They think it's all over, but it is only just starting for the finance director at spread-betting team IG Group. Tim Howkins is set to be elevated into the chief executive's slot following the announcement that the current holder of the title, Nat Le Roux, will be stepping down.
Spread-betting has taken off big time, with companies such as IG Group benefiting from an apparently insatiable appetite for what is, essentially, a sophisticated form of online gambling.
The original founder was Stuart Wheeler, famed for making a rather hefty donation to the Tories, proof that the man was a born gambler. IG floated in 2000, then was taken private in a management buyout in 2003. It re-floated in 2005, and is due to announce its second full-year results on Monday 24 July.
Le Roux led the buyout, but has now handed over the reins to Howkins, who joined the group in 1999 and was part of the MBO team. And he takes over at a very interesting time. Punters were expected to have placed £1bn in bets on the World Cup, and IG Group will have hoped to grab a slice of the action - as well as betting on share prices, foreign exchange and commodities, IG will take positions in sporting and political events.
So Howkins should have good news to report. Analysts are putting money on a profit spread of between £45m and £50m, which would be up around 40% on the previous year. Its sports business is expected to have grown by 30%, while its 'contracts for difference' business should turn in a growth rate of 60%.
Howkins will also report on the progress of several new initiatives including extrabet.com, an innovative sports fixed-odds service that allows bets to be placed right up to the final whistle. And then there is its binary betting service, which allows you to close out a bet before the sporting action has finished.
But Howkins will need to keep on his toes - recent stock market falls, while benefiting his business through added volatility, have also, ironically, made IG Group vulnerable to a takeover bid. Australian bank Macquaire is rumoured to be considering a punt on the spread-better, though a healthy set of results could push IG's price up and out of its reach.
Shares in IG Group, the spread-betting firm, have had a stellar run since the company was refloated on the stock market at 116p in April last year. With the shares at 278p, IG Group is valued at almost £1 billion.
Over the past five years, IG has ridden the boom in spread betting, which offers the chance to bet on falling as well as rising prices. Full-year profits in July jumped by 51% this year and the number of customers rose 26% to 300,000.
IG is adding 1,000 customers a month. Punters are getting more adventurous — five years ago most bets were on equity indexes, now many people take a flutter on commodities and foreign exchange.
The challenge is to maintain the pace. IG is vulnerable if markets are dull, while some analysts have raised concerns that binary bets — allowing punters to gamble on two possible outcomes — have not yet taken off. Even if the market is booming, maintaining growth in Britain of between 40% and 50% looks tricky. That makes expansion abroad crucial.
So far there are signs that it is working. Revenues from the Irish division are up tenfold on last year, while Tim Howkins, the chief executive, reckons the Australian business could be even bigger than the British one. The shares are not cheap at about 20 times earnings, but are still worth holding.
Spread betting has taken the world by storm. Invented only 20 years ago by IG group founder Peter Wheeler, it has really taken off in the last decade. Lynch might not like the lack of asset backing, as this is a financial business, but the world is moving away from physical-only assets. Arguably IG is worth a lot more than £1 billion.
IG has the biggest cash pile of any FTSE Mid 250 company as it doubled from £247 million to £484 million last year. Then there is the value of the brand and all the bright people spreading the business model round the world. Once you've got your head around the concept of spread betting, it is easy to do and made simpler by the easy-to-use systems at IG. The group is almost as big in CFDs, which grew 71% last year against 22% for spread betting.
Toppling IG from its UK leadership will take some doing, as its base is widening to include betting on sports events as well as on shares and other financial instruments/commodities. Management has been greatly strengthened since Wheeler's departure. It is not resting on its laurels, though, with increased spending on the IG brand to attract new customers, introduce new systems and products and expand overseas led by Australia, Germany and Singapore.
One of the secret's of IG's success is paying its staff well. Salary expenses rose a third to £20 million and bonuses rose £1 million to £10 million. Shareholders have enjoyed an equally good time since the float in Spring 2005 with the shares almost tripling on the back of earnings up from 4.8p in 2003 to 14.5p last year. Growth prospects remain great, with EPS of 17.5p expected this year and over 20p next year.
The company said market volatility undoubtedly played a part in the growth that it has seen in the last six months. Volatility is an important short-term driver of client activity as it makes trading of the financial markets more interesting for existing clients and it also helps with the recruitment of new clients.
While heightened market volatility certainly contributed, the company does not believe that the rise in its growth rate is solely as a result of it. Its long-run growth is driven by the rate at which it recruits new clients and that is viewed as the key lead-indicator of the strength of the business. The strong momentum seen at the end of the last financial year in relation to the number of financial accounts opened has continued into this financial year.
Two years ago the company was, on average, opening 650 U.K. spread betting accounts and 350 CFD accounts worldwide per month. Both figures have increased progressively and over the last quarter it averaged more than 1,900 spread betting accounts and around 1,400 CFD accounts opened per month.
In July the company launched its new online financial dealing platform, PureDeal, for U.K. spread betting. This platform has been very well received by its clients and it believes that the increase in client recruitment is thanks in part to the quality of its technology.
The company said it has continued to roll this platform out across its CFD offering with it going live for U.K. and Australian CFDs in November and across most of its European offerings in December. The roll-out of PureDeal will be substantially completed by the end of this month when its launched in Singapore. In each case the launch of PureDeal is accompanied by a major re-working of the web-site, a programme of client communication followed by an advertising campaign show-casing the features of PureDeal.
The client education programme, TradeSense, has now also been rolled out across virtually all operations world-wide. The roll-out will be completed later this month when it is launched in Singapore.
The U.K. financial betting business continues to deliver strong growth. Revenue for this business was GBP48.2 million compared to GBP33.7 million in the corresponding period last year, an increase of 43%. In the six months to Nov. 30, 2007 IG Group recruited 10,100 financial spread betting clients in its U.K. business, up almost 100% on the corresponding period last year.
Revenue from U.K. based CFD clients was up 67.5% to GBP9.6 million. Accounts opened in the period were 2,513, again an increase of almost 100% on the corresponding period last year.
Revenue from the rest of Europe rose by 94% to GBP8.9 million. The European operations that were established in the Autumn of 2006 have continued to show good growth in revenue and in rate of account opening. The company continues to see good levels of business from clients in Ireland and its revenue from Irish clients doubled to GBP4 million.
The advent of the Markets in Financial Instruments Directive allowed the company to set up offices in France and Spain, both of which started to recruit clients in early November. It is too early to draw any conclusions, but the early signs from both of these new markets are encouraging with both getting good levels of interest, the company said.
Together its offices in Paris and Madrid will add about GBP2.5 million to annual costs. The company does not anticipate that they will contribute materially to its revenue in the current year, but in the longer term believes they will all be important sources of revenue.
Asia Pacific delivered the strongest growth with revenue up by 124% to GBP12.1 million. This growth was driven primarily by a very strong performance by the Australian operation, but also reflects a strong performance from the Singapore office which was established in the Spring of 2006.
In the six month period the Singapore office opened almost 750 accounts. The Australian office opened almost 4,000 accounts in the six month period, 54% more than in the corresponding period of the prior year. Account opening in Australia is now running at a similar rate to that of the U.K. spread betting business two years ago.
In December the company completed its acquisition of HedgeStreet Inc, which is a U.S. exchange regulated by the Commodity Futures Trading Commission ("CFTC"). The first step in the development of that business will be to re-open the exchange with its existing, relatively limited, offering of binary options. The company hopes to do that before the end of this month. It has plans to offer additional products on the exchange and we will continue to develop the product set during the course of 2008.
The company is also in the process of activating its US-based forex business, IG Markets Inc, which will offer OTC forex contracts, including OTC forex binary options. It anticipates that this business will commence trading in March.
The company has leased office space in Chicago and begun recruiting the additional staff that it needs. It expects that these two new U.S. businesses will add GBP2 million to its costs in the second half of the year. While neither of these U.S. businesses is likely to contribute significant revenue in this financial year, in the longer term, the company believes that the U.S. should become an interesting and profitable market for it.
The sports business grew by 6%, up to revenue of GBP6.3 million. This growth rate is distorted by the inclusion of the football World Cup in the comparator period, which is the most significant event in the four year sporting calendar.
 |
Spread betting company IG Group Holdings PLC said group revenue for the three months to end-February rose 55 pct to 46 mln stg from 29.7 mln stg a year earlier, that it remains confident in its prospects for the current year and is "well-positioned" for further growth.
The group's new offices in France and Spain, which have been trading for about four months, have already generated sufficient revenue to cover their direct monthly costs, it said in a trading statement.
It added costs remain in line with management expectations, and it continues to benefit from the equity market volatility, which is an important short-term driver of client activity in its financial business.