London Capital Group: Record Numbers but Lower Interest Rates hit Profits
February 25, 2010Janice No Comments »
London Capital Group PLC; the company behind Capital Spreads reported its full-year pretax profit update Thursday posting a 46% fall in full-year pretax profit as the company admitted that its trading has been hit by lower UK interest rates and increased costs to develop its trading platform despite record number of account openings.
Key Figures
- Record level of UK Financial Spread Betting (FSB) live accounts up 53% to 51,240 in 2009 (2008: 33,560)
- Record number of UK (FSB) account openings up 26% to 18,235 in 2009 (2008: 14,430)
- Record volume of UK FSB trades per month up 25% to 0.5m (2008: 0.4m)
- Total FSB client funds up 43% to £34.72m (2008: £24.22m)
- Foreign exchange client funds down 13% to £19.13m (2008: £22.01m)
- Signed five new White Label agreements including PartyGaming PLC
For the year ending December 2009, the company reported a pre-tax profit of £5.8 million compared to £10.9 in 2008. Revenue decreased 4% to £27.6 million from £28.9 million.
‘Everything so far looking good for this year. We have had a good start and we are confident of meeting those expectations,’ CEO Chapman said.
London Capital Group further announced that Chief Executive Frank Chapman intends to step down from his role taking up the position of non-executive vice chairman while Simon Denham will take the helm. The company stated that its is comfortable of meeting forward pretax profit analysts predictions of £6.5 this year, and revenues of £30 million.
The financial spread betting and trading company added that trading in 2010 has started well with all business divisions trading well mirroring more favourable market conditions and the increased client base which is boosting trading volumes. The company is also in discussions with a number of companies about its white-label service – which empowers potential partners to get into the market with minimal infrastructure costs under their own brand name, and expects another year of strong client gains. The company has reached a number of new white-label deals last years with some of the best being PartyGaming, Paddy Power and Tradefair (a division of Betfair).
The company further plans to launch a contracts for difference and Meta Trader platform in the second quarter of 2010 which would further complement the firm’s core broking, forex trading and spread betting offerings. However the planned rollout of the contracts for difference platform, coupled with increased regulatory capital requirements, has led to the waiving of the final dividend. The company stated that it has £10 million and last year had paid an interim dividend of 2.5 pence a share.
Comments: So as I long suspected lower interest rates aren’t good for LCG’s bottom line and the company has admitted that there was a cutback on rolling charge revenue on clients running positions. ‘On leveraged books, revenue at 7% (5%+2%) of net open positions in 2008 was considerably more profitable than in 2009 where only 2.5% was earned (0.5%+2%).’ However, on average 39% of total clients were active during the year and funds on account rose by 35% with average trades per day rising 14% to 23,975 (2008:20,967). This continued growth in client volumes should translate into growth in 2010 as LCG starts a fresh year with interest rates held constant throughout – this coupled with the Group’s new CFD and MetaTrader platforms, to be launched in the second quarter of 2010 should contribute positively to growth. In my book LCG remains a reasonable company which generated £6m profit in 12 months. Add to that as a blogger rightly pointed out, the company has £55m in clients cash (which in normal times would earn it some £2-2.5m pa in interest) and that this recession won’t last forever so that revenue stream should return and that management owns 40% of this company – I rate it a buy*.
* this is the author’s opinion and not a recommendation to buy.
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