London Capital Doubles Dividend As 1H Pfts Jump

LONDON (Dow Jones)–Online financial spread betting and trading company, Capital Spreads (LCG.LN), Thursday doubled its dividend after announcing a 52% rise in pretax profit on higher revenues driven by a jump in client wins.

In the six months to June 30, pretax profit excluding sare-based payment expenses was GBP5.94 million, up from GBP3.90 million in the previous year. Revenues rose 54% to GBP12.51 million, from GBP8.13 million, predominantly driven by the company’s spread betting division.

At 1350 GMT, London Capital’s sares were up 6 pence, or 2%, at 295 pence.

The results were “excellent” and showed the company is comfortably on track to meet full-year pretax forecasts of GBP12 million, Cenkos Securities said in a note to investors.

Chief Executive Officer Frank Chapman said second half trading to date had been strong and, although mindful of current market conditions, the group was optimistic for the remainder of the year.

The company admitted that trading slowed in the second quarter from the first as the credit crunch made customers more risk averse and trade in smaller volumes.

Key growth drivers in the first half were an acceleration in client acquisition rates and record client monies on deposit, said Cenkos. This was in contrast to the latter half of 2007 when growth was primarily driven by extraordinary levels of trading activity, the broker said.

A 96% increase in client wins to 25,853 was partly due to contributions from Paddy Power and Betfair, which featured in the results for the first time. London Capital runs so-called white-label spread betting operations under the Paddy Power and Betfair brands in exchange for commission-based payments to these companies.

Cash balances of GBP9.7 million were sufficient to enable London Capital to increase its interim dividend to 2.5 pence, from 1.25 pence.

The group had no debt at the end of the half year. Strict risk management controls, including a policy of not offering credit and placing automatic stop losses on all retail client positions, has meant minimal bad debts across all group divisions of only GBP8,000, it said.

Chapman said the company is focused on organic growth, having increased headcount in the U.K. and abroad and doubling the size of its head office.

Last month it launched a new spread betting platform in Germany, another white-label offering with a Betfair interface. The German product is the company’s first proprietary trading platform that was developed in-house rather than by its U.K. IT partner. The company is also currently developing an international CFD platform.

But London Capital said it was able to gain fast, cost-effective and low risk access to other markets by offering its non-proprietary solutions to partners in other jurisdictions rather than setting up its own operations.

The company’s policy of partnering through so-called white-label arrangements with high profile operators will enable it to further accelerate growth despite difficult market conditions, Cenkos said, adding that it thinks London Capital’s growth potential is at least that of industry leader IG Group, if not better.

Tags: capital spreads, CapitalSpreads, LCG.L, london capital group

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