IG Group’s year earnings jump

IG Group – Britain’s biggest spread-betting company, posted a 51 percent rise in core profit to 52.6 million pounds on Monday and said a return of cash to shareholders was becoming more likely.

The company, which allows investors to speculate on currencies, interest rates, shares and indices, had said in an earlier trading update it expected earnings before interest, tax, depreciation and amortisation (EBITDA) in the year to end-May to come in above 50 million pounds.

IG, which has grown revenues at a compound rate of around 40 percent over the past eight years, said turnover rose 44 percent to 89.4 million pounds and that current trading was strong.

Shares in IG were up 3.7 percent to 209-1/2 pence in early trade, the second-best performer in the UK mid-cap index <.FTMC>.

Numis Securities described the results as “stunning”, particularly with average revenue per client rising to a new high of 2,715 pounds.

“Client acquisition appears to have accelerated as the year progressed and seems to have maintained momentum. This bodes well for the coming year,” said Numis in a research note.

IG said its financial spread-betting business had its most successful year. Revenue at the unit, which accounts for 61 percent of revenue, jumped 47 percent to 54.8 million pounds.

The company said equity market volatility was subdued for most of the year but jumped dramatically in the last two weeks of May. However, IG said it had no loss-making days and that volatility in its own daily revenue remained low.

“The company’s shares have pulled back with the rest of the betting stocks recently, despite not taking bets from the U.S., and we think this is unjustified given the growth prospects of the company,” said Bridgewell Securities analyst Geoff Miller.

Miller, who had forecast EBITDA of 50.9 million pounds, said IG’s price-to-earnings multiple of 15 times current year earnings “may not look cheap, but these results demonstrate the growth prospects and suggest that it is a price worth paying”.

IG’s Chief Executive designate Tim Howkins told Reuters any cash return would depend on the pace of industry consolidation, but said such a move was on the cards because otherwise the company would amass an “embarrassing pile” of cash.

“Clearly the business throws off a lot of profit and a lot of cash. At the year end we had 45 million pounds of our own funds and a 30 million pound regulatory capital excess, which is actually the more relevant number. Clearly both numbers will continue to rise quite dramatically,” Howkins said.

The company has proposed a maiden final dividend of 4 pence per share, bringing the full-year payout to 5.5 pence. The dividend is now twice covered – as set out in the prospectus.

Howkins said any move to return cash would depend partly on the level of takeover activity in the industry.

“There is still the faint possibility of some sort of industry consolidation. Some of the competitors are beginning to look a bit tired and stale,” he said. “Maybe at some point one of those will come to a realisation of what their business is actually worth and decide to get out. We would be interested in a purchase of a client base at the right price,” Howkins added.

Howkins, IG’s former finance director, is preparing to formally take over as IG’s CEO after Nat le Roux announced two months ago he wanted to step down from the post he had held for more than four years. Le Roux has stayed on as non-executive deputy chairman and works as an IG consultant one day per week.

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