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If spread betters are any guide, UK house prices are set for a softer landing than many predict. Since the country's only spread betting firm to offer trades on house price movements reopened its books to new business in April, punters' expectations of near double-digit falls have waned.
IG Index had priced a year-on-year fall of about 9 per cent in the average UK house price of £163,000 when it started taking bets on what house prices would be in March 2006. However, a steady stream of bullish trades has seen the firm's quote rise from a middle-of-spread price of £149,000 to £159,000. This represents a fall of just 3 per cent.
"Generally, people are now not expecting doom and gloom," says Will Armitage, a senior official with IG Index.
The change follows recent economic data. The Halifax bank, on which IG bases its quotes, said in its April house price report that there was further evidence that "activity levels", or buying and selling, had stabilised, after a decline last year. This followed mortgage approvals rising to a seven-month high in March, suggesting that some buyers were returning to the housing market.
Buyers have also been buoyed by fixed interest rates which are at their lowest level for 12 months.
IG has only recently resumed offering trades on house price movements after closing to new business in September. It took the measure after being flooded with punters wanting to go short, or gamble on a crash.
Spread betting works by the punter taking a position on whether a share or an index will move up or down. They either "buy" or "sell" at either end of the spread, or quote, on daily offer from the spread betting firm. Any gains made are tax-free.
Armitage says plenty of punters did well out of their recent bet on house prices, with some making six-figure gains. "There's a lot of people having holidays now on us," he says.
However, punters who went hard late last year on the belief of a crash wouldn't have fared so well, with prices not falling as far as some thought. In spread betting, unlike fixed odds, you stand to lose more each time the bet goes against your position.
Financial advisers say that while spread betting may be attractive to people wanting to hedge against falls in their own property values, it is not for the average investor. "It might be a way for people who are thinking of buying additional property to make some money," says Brian Dennehy of independent financial advisers Dennehy Weller. "But what concerns me is that it is essentially gambling."
Dennehy says that while spread betting does have a tax-free appeal, that should not be the only reason to try it. "You should never the let the tax tail wag the investment dog," he says. "These are the sorts of tax advantages which got people into VCTs in the first quarter of this year. However, they went in with no understanding of how complex their investment could be."
EACH week our spread-betting round-up reveals the biggest bets being made by punters on shares, indices, currencies and commodities.
OIL continues to draw high betting volumes. Instinctive traders are still buying oil, while technical betters sell. Great news for the spread-betting companies as the netted trades mean they have little exposure to a big price move.
As the price of oil decreases, both buyers and sellers become more vigorous in their trading. Only a break beneath $45 per barrel will force the 'long' traders to cut their losses and sell. In the meantime, range-bound trading means more activity from ultra short-term speculators holding intra-day positions. Volatility equals opportunity, and that's where spread-betters are in their element.
Index traders are unusually quiet, waiting for a breakout before diving into new bets. Chartists point out that a downward sloping resistance line at 4915 is combining with an important horizontal Fibonacci support line at 4774.
So what's the significance? The index is slowly but surely getting squeezed into an ever-narrowing 'descending wedge' pattern. And just like the dollar versus pound two weeks ago, this is classic 'break-out' territory.
Betters are keeping their powder dry for a convincing break through either line before jumping on a trade in the same direction as the breakout. Analysts expect any break to come in the next eight trading days. Great in theory, but it'll be interesting to see how traders fare in practice.
Individual share trading volumes remain depleted since the General Election. A brief flurry of activity in supermarket shares this week saw sellers in Sainsbury's and Marks & Spencer, while buyers added to their existing long-positions in Tesco. WM Morrison continued to plumb new depths and attracting bargain hunter buyers in the process.
As a rule of thumb, betters are net buyers of shares whether news flow is positive or negative. Most spread-betters previously traded cash shares that offer no opportunity to 'sell short'. So it's easy to see why their trading mindset that still favours buys.
In contrast, Forex traders find it far easier to balance long and short trades, viewing their market simply as a numeric instrument that can go down as easily as up. But little by little, share traders are joining their currency counterparts with more sell trades.
Paul Davidson, the bankrupt businessman known as "The Plumber", yesterday called on a City tribunal to grant him "tens of millions" of pounds of compensation for damages allegedly inflicted by the Financial Services Authority.
The Financial Services and Markets Tribunal, convened to set out a timetable for his appeal against a £750,000 fine for market abuse, also heard the FSA open the door to reducing the fine because of Mr Davidson's financial situation.
The FSA told the tribunal that Mr Davidson had been declared bankrupt in December, since the first tribunal had been halted after discrepancies were uncovered that led to the resignation of senior FSA regulator Christopher FitzGerald.
Mr FitzGerald had met Terence Mowschenson QC, a member of the tribunal hearing Mr Davidson's case, just days after the case had begun a year ago.
Mr Davidson, representing himself, sought assurances that the new members of the tribunal had no similar contact with regulatory officers. The assurances were given.
Mr Davidson claimed he should receive "tens of millions" in compensation because the FSA had acted in bad faith and committed misfeasance in public office during its investigation into a £6m spread bet he placed during the flotation of drugs company Cyprotex three years ago.
He was told that the tribunal had no powers to grant him compensation and that any complaint resulting from the delay to the tribunal last year should be made to the Department for Constitutional Affairs.
At the hearing, his case was set to be heard in October. It is scheduled to run for six weeks.
An appeal by Ashley Tatham, who took the £6m bet at spread betting firm City Index, will be heard at the same time. He had planned to appear as a witness for the FSA until he decided to widen his appeal from complaining about the level of the fine to complaining about the findings of the FSA into the events surrounding the bet.
Spread betting punters are starting this week with short positions in the main stock market indices, as rumours fly around about hedge fund problems and Iran's nuclear ambitions.
The markets have not however been ideal for traders recently - many were caught out by sterling's further fall against the dollar this morning, or by the steep drop in the oil price.
The £577 million takeover approach for Lastminute.com last Friday took many shorters by surprise, causing stops to be hit.
However bookmakers say that those punters taking out fresh positions in LMC have mostly been going short today, apparently on the view that the bid from Travelocity might founder.
IG Index said its clients were net short of both the FTSE and the Dow Jones today, while Capital Spreads said that its customers were short on all the main stock indices.
IG said it had seen punters move long of the dollar against the euro, the pound and commodities such as copper.
Capital reported that its clients had been taking profits on their long positions in mining stocks as they slipped back. Those with positions in Allied Domecq, facing an agreed bid from Pernod Ricard, are mostly long, Capital said.
Meanwhile, bookies are also quoting prices on the next Conservative Party leader. As I write, Betfair has David Davis on the decimal equivalent of 11/2, David Cameron on 9/1 and Malcolm Rifkind 10/1.
The unexpected Tory gains hit the wallets of spread betting punters after several big wagers were placed on a strong Labour performance in the days leading up to the election.
With the spread on the Labour majority moving as high as 86-90 seats on Tuesday, IG Index took its biggest bet of the campaign - a £2,000 buyer of a government majority of 84. The majority of about 65 means the buyer will be at least £38,000 out of pocket.
"On Wednesday all the sellers came in and obviously decided the price was too high, which moved the spread on a Labour majority back down to 80-86," said Karim Fatih, politics analyst with IG Index.
The strong Tory performance caught punters by surprise, he added.
Bookmakers as ever had their tales of woe. "We lost to all the big money gamblers who staked a string of five-figure bets and one of £100,000 on a Labour victory, forcing the odds down to 1/33," said Graham Sharpe of William Hill.
"But most gamblers over-estimated the margin of the Labour victory at 81 or more seats, so we clawed some cash back from that market."
Mr Sharpe added that the election generated £10m of betting turnover.
By yesterday afternoon, punters had turned to the next political betting challenge, Ladbrokes taking more than £20,000 on the next Tory leader in three hours.
The biggest bet was £1,500 on Andrew Lansley at 10/1, followed by £800 on David Davis at 9/4. There has also been support for George Osborne, whose odds were cut from 16/1 to 11/1, and Malcolm Rifkind at 10/1.
The betting markets are gambling that Labour will be returned with a 78-seat majority in the general election this week, less than half the 166 it achieved last time. The total has dropped slightly in the past seven days, following the controversy over Iraq.
The betting markets are likely to be followed closely as they represent the collective views of 30,000 punters; and the markets predicted the outcome of the US Presidential election more rapidly and more accurately than individual pollsters or commentators.
Bookmakers are preparing for record amounts of money to be wagered in the next few days. IG Index, the spread-betting company, has opened more accounts than at any time since the World Cup in 2002; and William Hill says the conventional bookmakers will lay at least £10m.
Betfair, the betting exchange that handled more than £17m-worth of bets on the US Presidential election, is expecting at least 10,000 of its customers to be active.
The betting exchange and spread-betting firms expect £30m worth of bets to be placed. They have created markets on more than 250 different election subjects, from the colour of Tony Blair's shirt on Thursday night to "General Election cricket" - how many seats Labour will have chalked up when the tenth Conservative win is declared.
The really serious money is going on the spread-betting markets, where the number of seats each party might get is traded as if it was a stock or a share. Here a punter "buys" or "sells" at the prices offered and winnings or losses are calculated by taking the difference between the agreed seat level multiplied by the amount bet.
Thus the punter who wagered £3,000 a seat last week on the Conservatives at the 195 level would lose £87,000 if the party makes no progress on the 166 seats it got four years ago. On the other hand, if Michael Howard's party achieves a breakthrough and reaches, say, 250 seats then this gambler would win £165,000.
On the conventional markets the price of 1-33 on Labour to win most seats has not deterred gamblers. One or two have risked up to £100,000 for what they see as a certain win of £3,333.
Spread betting traders have been hard hit by last week's near-halving of Marconi's share price in response to bad news on the company's attempt to win a key contract from BT.
Bookmakers said that some punters were long of the stock ahead of the announcement on Thursday morning, while others were quick to jump into long positions after the initial fall.
Marconi shares rallied by 19.5p today, but not before they had hit an intra-day low just below 250p on Friday. The stock's high last year was 696p in July.
As far as other trades are concerned, bookies report strong two-way business in Google, which has soared from $100 a share last September to $224.57 today; and buying of Allied Domecq over recent day. The latter trade is one in which spread betting traders have done well, as a contested bid situation has developed.
Capital Spreads said its clients are net long of the FTSE, the German Dax and the US S&P500. They were bullish of the Dow up till today, but have now reversed this, apparently on the look-out for a pull-back.
Punters are also net long of oil from around $48 or $49-a-barrel, and long of gold and silver, Capital Spreads said.
Meanwhile, betting on Thursday's General Election is reaching a climax, with most bookies quoting a spread of around 80 for Labour's majority in the new parliament.
Betfair was today quoting a "line market" - similar to spread betting - on the number of seats each party would win. Its quote on Labour is currently 358.5-363, with the Conservatives on 191-191.5 and the Liberal Democrats on 64-66.5.
A BLIND conman posed as a stocks and shares expert to dupe victims out of more than £100,000.
Clifford Gardiner, 45, claimed he would make punters big profits by investing their stakes on the Financial Times Share Index.
Hopefuls from across Britain punted thousands on his 'tips'.
But the internet conman only ever invested their money in one place - his own bank account.
Backers believed Gardiner was a financial high-flyer and had no idea he ran his 'firm' from a shabby flat in Perth.
He never met any of the people who trusted him with their cash and conducted his cons over the internet using a special computer designed for visually impaired users.
Most of the hi-tech machines work by translating text using a scanner, which is then read out to the user.
Gardiner's victims started to become suspicious when they never got updates on how their money was doing.
Victim Brian Falconer, 50, of Glasgow, handed over £3000He said: 'I heard about Gardiner through someone who did a website on financial spread betting. I had some cash and got involved in his scheme.
'It all seemed genuine enough. It worked as a syndicate and I was even made to wait around a year before I was allowed to join up.
'The idea was that he had a strategy for spread betting on the FTSE 100.
'You would buy in and after three years you would get back whatever return he made.
'I made a direct payment from my bank account and it went straight into his. That's why I wasn't concerned, because it was traceable to him. There was no way he could escape with it.
'But then he started refusing to talk to anybody online. I didn't know what he had done with my money.
'His con came to light when another person got a cheque from Gardiner and it bounced. As soon as that happened, he emailed me. I wrote my cash off instantly.'
Another victim, Erik Bos, 43, from Bath, lost £5000. He said: 'I am so angry about what's happened.
'If I had lost the money because of investments going wrong I could have handled that but to lose it under false pretences just isn't right. I hope he had a good time on my cash.'
After complaints from worried victims, Tayside Police investigated Gardiner and charged him with ripping off more than £110,000 from clients.
Shortly before he was due to stand trial, the Crown dropped claims he had defrauded a Dunoon man of £49,621 as well as six others totalling nearly £45,000.
Last week, Gardiner admitted obtaining £16,957 by fraud between January and May 2002 at Perth Sheriff Court .
He also admitted falsely representing to people that he would invest their cash in a shares betting scheme and return it with profits, after taking his own commission.
Gardiner, who claimed he was being put under financial pressure by a mystery third party, had originally faced claims he ran the scam for more than four years. Sentence was deferred for reports next month.
Last night, Gardiner refused to comment
CITY gamblers are betting on a fall of between 3% and 4% in house prices over the next year, both in the capital and in the country as a whole, as the great millennium property boom comes to an end.
However, punters are not nearly as pessimistic on the outlook as they were last autumn when spread betting bookmaker IG Index temporarily suspended the market on house prices because it did not want any further exposure to the property market.
When IG resumed taking bets earlier this month, its quotes were implying a 10% fall in London prices by March 2006 - but a stream of relatively bullish bets since then has slashed the implied drop in prices to just 3.7%.
IG's quotes, based on the Halifax index, were yesterday suggesting the average price in the capital would slip from £241,918 in March this year to £232,800 next March.
For the UK as a whole, IG's prices were yesterday implying a similar-sized decline, from an average of £163,700 last month to £158,100 by March 2006.
John Austin, financial dealing director at IG, says: 'Just before we closed our book last September, we had seen panic selling of house prices. Now, the consensus seems to be moving more towards a soft landing.'
One punter says: 'A lot depends on whether the Bank of England raises interest rates after the election. If it does, house prices may get another push downward. Personally, I don't think the Bank will hike rates, so I'm tempted to bet on pretty stable house prices.'
Spread betting provides the only direct way for British speculators to stake money on future property values - other than by buying the actual bricks and mortar themselves.
By last September, IG had taken such a preponderance of pessimistic wagers from its clients that it had reached its self-imposed maximum exposure to the housing market.
Many of these client trades expired earlier in April, when the Halifax house price index for March was published. So IG felt able to start accepting new bets again a fortnight ago.
Of last year's crop of pessimistic punters, the ones that did best were those that made down-bets on house prices early in 2004, before Bank of England Governor Mervyn King's stern warning on 15 June about possible property price falls.
IG said several of these clients made profits of more than £100,000 each. Those that made down-bets on prices later in the summer ended up more or less allsquare when the bets expired with the publication of the Halifax's March house price indices.
The bookie's latest prices project a future for property values that is fairly close to the Halifax's official forecast of a 2% fall in UK house prices this year and a 4% drop in London. However, both are more pessimistic than the Nationwide, which has been forecasting a rise of up to 5% in UK house prices in 2005.
Yesterday's prices from IG indicate the likelihood of falls in property values in every region. In the South-East, for instance, they suggest a fall on the Halifax measure of 4.7% in the year to next March; in Wales the implied fall is 3%.
This similar pattern across the country marks a change from last year when spread-betting prices were predicting a much worse price recession in London and the South-East than in the North, Wales and Scotland.
People who are active in speculating on house prices range from wealthy investors looking to hedge the value of their own homes to property professionals trying to anticipate the market's direction..
Anyone who does bet has to contend with a rather wide spread between the bid and offer prices, so there is no point in anyone speculating unless they think they can make profits of more than one or two percentage points.
A speculator on the London price could make a down-bet from the bottom of IG's spread for March 2006, at £229,000, or an up-bet from the top of the spread at £236,700.
Halifax earlier this month published a 'standard average price' for a property in London in March of £241,918, up just 0.1% compared with December and 1.1% higher than a year earlier.
However, unless prices rise between March and June, by the summer the annual house price inflation rate in London on the Halifax index is likely to be modestly negative.
The Group has three main operating companies in Britain. IG Index is a financial spread-betting firm. It offers prices on a range of indexes, currencies, commodities and individual shares. It also runs a sports spread-betting service.
IG Markets acts as a market-maker in financial derivatives such as contracts for difference. Binarybet.com offers fast online two-way betting.
Founded in 1974, IG Group was floated on the London Stock Exchange in 2000. In 2003 the group was delisted after a management buyout led by Nat le Roux, the current chief executive, and backed by CVC Capital Partners. IG Group companies have more than 15,000 active clients worldwide.
The two experts below have been selected for their skill in several investment areas. They, or the funds they manage, may buy or sell shares in the companies or sectors that are discussed in this column.
Andy Brough, fund manager at Schroders:
The acquisition of IG Index in September 2003 by the management and the venture-capital firm CVC shows how they make money. Acquired on a price/ earnings ratio of 14.5, they grew the profits of this company for 18 months and generated cash by strict cost control. Profits were £14.3m in 2003 and are estimated by brokers to increase to £32m for the year that will end on May 31, 2006.
This figure is the profit before interest because IG Group is paying a high interest charge on the debt used to finance the buyout. The company now aims to pay off this debt by raising equity at an indicated p/e ratio of between 17 and 19 on the 2006 estimate.
This makes the return on the original equity investment very large indeed. Now don't get me wrong, I have no problem with people making a profit. But what exactly have the management and the backers done to suggest that profits are big enough to justify a p/e ratio 20% to 30% higher than when they bought the business? Technology has indeed increased the level of online trading and given all the scaleability benefits. In addition, the market has doubled in size over the past five years, although it remains to be seen whether growth will continue at this rate.
Looking at the past 18 months in terms of turnover, and breaking it down into the individual six-month periods suggests that progress in the financial division is slowing. Binary products are proving to be the main area of growth.
So having sold the company to the management and CVC, do I feel bitter? IG Group is a nice business but its prospects do not deserve a higher rating than the 14.5 at which it was acquired. It is time for the investment institutions to take a stand and say no to the management and the venture capitalists. Okay, you have made money by increasing the profits and putting in expensive debt but please don't try to put a higher p/e rating on the same profits that were there before.
Judgment: Wait for the price to come down to a p/e ratio of 14.5. If it doesn't, avoid.
Tim Steer, fund manager at New Star:
What goes around comes around. So it is in the world of venture capital. Familiar names such as Debenhams and Pizza Express are, we hear, planning on relisting their shares soon after delisting from the stock market. You can bet that when these companies come back to the market, venture capitalists will have made a tidy profit by selling the company to, often, the same investors who sold it to them.
Well, investors have the chance to perhaps look foolish again this month with IG Group. Management and venture capitalists bought the company from institutions for £143m about 18 months ago. Now we are expected to pay about £400m for it.
Analysts supporting the IG float have chosen to value it using the high price/earnings ratios associated with internet and traditional gambling companies. This is helpful only to those who wish to maximise the profit for the sellers. Sportingbet will double its earnings in 2005 and many of the traditional gambling groups such as Stanley Leisure are subject to bids or bid speculation.
Since the management buyout of IG Group in 2003, the market has been kind, and operating profits have risen 47%. My concern is that in the period since the buyout, IG's clients — many of whom work in the financial-services industry — have put on bets based on the feelgood factor that the bull market is back. For their sake I hope it is because the average punter is losing £2,500 each year as the FTSE 100 index finds it difficult to break through the 5,000 level.
The period before the buyout was a tough time for IG Group as it reduced its hedging, but I hear management has increased it now so the City Index problem — with its private client The Plumber — is less likely to be repeated here.
Although IG Group looks more scaleable, I would prefer to value it in line with private- client stockbrokers (IG Group clients are normally private clients) and thus would like to see the shares closer to 100p than the indicated range of 112p-139p.
Judgment: Worth a punt at a pound.
IG Group at a glance.
Predicted share-price range: 112p-139p.
Predicted value on flotation: £375m-£435m.
Flotation date: May 4.
Pre-tax profit in 2004: £7.9m.
No dividend to be paid in first year.
CVC shareholders will cut their stake from 59% to 20%-25% after flotation. Nat le Roux, chief executive, is expected to hold 4.7%.
Losing £10,000 in two weeks on spread betting trades when you are not super rich would usually be a wake-up call for most people that their behaviour had got to a worrying point. But for Brian Jenkins, 35, it was a signal not to cut his losses, but to log back on to the internet and have another go, albeit with a money management strategy in place.
"The thing with spread betting is that it is 80 to 90 per cent psychological," says Jenkins, a former soldier who has done tours of duty in the Gulf and Bosnia.
"I had a get-rich-quick mindset and there is no such thing. There is a get-poor-quick mindset, if you don't get all the facts."
Jenkins, who launched his own business promoting healthy living, doesn't like to follow the herd when it comes to lifestyle or reaching his objectives.
With the Royal Engineers he worked on mine clearance trials in Bosnia and was a radio operator in tanks during the Gulf War. In his spare time he does things like sky diving.
"I am a hands on, get in there, and get dirty kind of guy," he says.
It is perhaps not surprising then, that the father of two has stuck with spread betting - a high-risk pursuit traditionally favoured by City traders - to finance the future of Unique Lifestyles, the business he runs with his wife.
With the business still growing, Jenkins says he gets some income from neuro linguistic programming, which he is trained to offer to those wanting to lose weight or stop smoking.
But he is relying largely on the gains from spread betting to finance the expansion of the business and to achieve his long-term goal to introduce neuro linguistic programming into schools throughout the country.
"There are some simple, cool techniques that are in NLP which children can use," he says. "But we have a whole package to do with food, exercise and mind techniques."
Jenkins says he first tried spread betting several years ago, but realised it could be a way for him to make money, ironically, after he'd made his huge losses.
"Why did I go back into spread betting? Well I went back because I had a vision and I knew there was a method for me to get financially free," he says.
He admits that the tax-free gains from winnings were also "a big attraction" .
What steadied his nerve was going on a financial spread betting course where he says he learnt a fundamental formula for winning.
From his Wiltshire home he applies the methods taught on the course. This involves a hefty amount of research, first narrowing down a sector, whether it be banks or pharmaceuticals, which has potential for a spread bet. He then conducts a valuation of a company within that sector, checking fundamentals likesuch as its price-to-earnings (P/E) ratio and operating margin.
He follows this by working out the company's earnings and revenue growth over the past two years. Next would be an assessment of the company's viability including gearing ratio and net current assets. Then he would consider the firm's outlook.
Market sentiment, gathered from analyst boards and discussions groups, is also taken into account. Finally he would look at the company's "technicals", including the 50/200 moving day average and its share price history before placing a bet.
After all of this, key figures must be met to enable successful trading.
"What is fundamental is that all the green lights are on," he says of his strategy.
Discipline is also very important.
"The golden rule is that at no time would I ever place a trade where I could potentially lose more than 5 per cent," he says.
So far he says the strategy is paying off, with all his losses recouped. He is also beating his monthly target of 15 per cent returns on his outlays.
His goal is to make £30,000 through spread betting this year. He recently did well by going short in March on the S&P 500 and Dow and is currently eyeing high commodity prices, energy stocks and the US retail sector.
Whether his strategy continues to bear fruit over the long term remains to be seen. But in the meantime he shrugs off suggestions that his reliance on spread betting to finance his future is needlessly risky.
"At the end of the day I am not a gambler," he says. "I don't go to the bookies. The reason this is different is that is that I have a strict methodology and there is an element of discipline.
"However, I wouldn't want people to read this article and get all hyper and go and trade and lose their money," he adds. "If people find a formula and follow the rules, then it is an opportunity to make reasonably safe money."
Spread betting traders have been attempting so far this week to pick the bottom of the downward move in stock markets.
Many punters were stopped out on their longs on individual stocks by the sharp falls in the Dow, FTSE and Nikkei between Thursday and Monday, although bookmakers said that others managed to make profits with short positions, particularly on the S&P and Nasdaq.
IG Index said that most clients have been looking for a bounce this week, while Finspreads said that its customers were betting long, apparently on the view that support would hold above 10,000 on the Dow. IG said that AstraZeneca and the banks were among the busiest individual stocks.
Two markets were punters have generally been making money in the last week has been the dollar and oil. Finspreads said punters have been shorting the dollar against the pound and the euro, and also holding onto short positions in Brent and Nymex.
Betting is hotting up on the General Election, with spreads on the possible Labour majority in the new parliament rising sharply from 50-56 a fortnight ago, to 71-77 now.
This morning, Sporting Index is quoting Labour to win 358-363 seats, down from 413 in 2001, with the Tories to win 192-197, up from 166, and the Liberal Democrats to get 64-67, up from 52.
Nat Le Roux, the chief executive of IG Group, could pocket more than £8m when the spread-betting firm floats for more than £400m on the stock market later this month.
According to the company's prospectus, Le Roux is expected to sell more than 5m shares from his current stake of 20.16m, or 9.3 per cent of the spread-betting group, depending on demand. This disposal would be worth £7m if the shares are sold at 139p - the top of the float price range.
However, Le Roux will also receive a further £1.32m for preference shares that are being redeemed. Le Roux's remaining stake, which could be diluted to 4.7 per cent after the flotation, could be worth £21m. He was paid £573,000 in salary and bonuses in the year to May 2004.
Tim Howkins, the finance director, and Peter Hetherington, the chief operating officer, could each receive more than £2.6m by selling shares. Overall, IG staff hold about 26 per cent of the business.
Rob Lucas, the non-executive director who is also a director of CVC, the private equity firm that bought IG Group for £143m in 2003, could make a £113,265 profit by selling shares.
The odds that investors will make money out of the upcoming reflotation of shares in IG Group, are unattractively long. Shares in the company certainly seem destined to trade at the lower end of the 112p to 139p mooted range when they come to market later this month. They might bust through the floor.
The easy way of indicating that CVC, the private equity seller, is expecting too much is to recall that CVC bought IG three years ago for about one third of the hoped-for value now. That methodology, admittedly, is a little unsophisticated because the spread betting market has developed and thanks to the passage of time IG operates within an industry that is more established and relatively robust. The number of active clients on IG's books has grown and profits are higher too. IG has also adopted a comprehensive policy on hedging the bets it takes on. In a previous stock market guise, under the chairmanship of Stuart Wheeler, the Tory Party donor, IG profitability swung wildly because it did not buy itself insurance against bookmaking losses.
The company has also developed a new form of spread betting known as binary betting. Binary betting takes the scariest aspect of spread betting out of the equation because the amount of money that can be lost in a bet is limited. (Binary betting also limits the punter's potential upside, mind.) But despite all these factors the pricing is too rich. Investors should make their judgments assuming that the stock will float at the top of the range because that might be what they end up paying. At 139p — or £435 million — the stock will trade at the equivalent of 25 times the estimates of earnings per share in the year to May 2005. The dividend yield will be 1.9 per cent. If, as some analysts believe, IG grows at 40 per cent next the year the earnings multiple falls to a more reasonable 17 and the yield rises to a more comfortable 3 per cent. But these benchmarks still leave the stock on a premium rating. And the assumed growth rate is nothing if not ambitious.
There is a large threat that the tax friendly status enjoyed by the spread betting fraternity will disappear. CVC's retention of a 59 per cent stake creates a large, price depressing, stock overhang. Leave well alone.
IG, which was taken private in September 2003 in a £143m deal backed by private equity house CVC, said it had begun an institutional roadshow for a float indicatively priced at 112p to 139p a share. Conditional dealings are due to start on April 28.
It added that it had appointed two new non-executive directors - Sir Alan Budd, the former chief economic adviser to the Treasury, and Martin Jackson, former finance director of Friends Provident.
It was Sir Alan who wrote the widely praised report into gambling, since undermined by culture secretary Tessa Jowell's U-turns over the Gambling Bill.
CVC owns 59.3pc of IG's ordinary shares, with 80 of the group's 240 staff holding 26.4pc and the balance held by Intermediate Capital and HBOS.
Chief executive Nat le Roux, who led the buyout, and finance director Tim Howkins own the biggest stakes among the staff, whose entire holding would be valued at no less than £66m.
Yesterday IG said the new money would be used to pay off all debt, leaving an ungeared balance sheet for acquisitions. Existing shareholders, including CVC and the management, are expected to sell some of their holdings. Rob Lucas, CVC partner, said the company would "retain a significant shareholding", while the management is expected to roll over most of their stake.
IG sources denied it was returning too fast to the market, having gone private after several profits warnings.
They said IG had been forced into the buyout after founder Stuart Wheeler failed to find a buyer for his remaining 24pc stake. Through the buyout he took out an estimated £34m, which he has used to refurbish Chilham Castle, his 17th-century manor house in Kent.
Since then IG, whose recent half-year operating profits rose 40pc to a record £16.1m, has become a less volatile business, taking little proprietary risk on clients' bets.
UBS is global coordinator for the float, with Bridgewell Securities and Numis Securities joint lead managers.
Spread betting punters are net long of the FTSE100 index - undeterred by the Prime Minister's announcement of the start of the General Election campaign.
Bookmakers said clients have been opening fresh longs in both the FTSE and the Dow, on the view that April would again prove a positive month for stock indices, as it has in some other years.
CMC/deal4free said moves in the Dow down to the 10,400 area have tended to spark buying by punters. It has also seen punters taking long positions out in many individual UK stocks.
Particularly in demand today have been the pharmaceuticals and drinks firms, and punters remain generally long of oil stocks. They are more cautious on financials however, CMC said.
Finspreads said its clients were long both the FTSE and the Dow today, but short of the Nasdaq. Selling the latter has been a good profit maker for traders recently.
On currencies, bookmakers say that most punters are short of the dollar across the board, looking for a retreat from recent highs for the US currency. Despite the coming election, most traders are long of the pound against the dollar.
Punters have had a difficult time with the oil price recently, as it has moved up to the $57 area on both Nymex and Brent.
Bookies said today that most clients remain short on oil, hoping that the top has now been established.
Bookmakers are expecting a surge of new betting on the General Election result. Today, IG Index was quoting Labour to win 346-351 seats in the new parliament, and the Tories 201-206. In 2001, Labour got 413 and the Conservatives 166. IG's latest spread on the likely Labour majority is 50-56.
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Punters using Betfair and IG Index are betting that Labour's election majority will be slashed to about 60 seats, a much smaller margin of victory than most polls suggest.
With Tony Blair set to announce a May election early next week, bookmakers, spread-betting companies and betting exchanges are preparing for a flurry of election-related bets.
Betfair, which allows punters to bet against each other over the internet, has already matched more than £1m of bets on the election result, with customers predicting a Labour victory. Customers of IG Index, the spread betting company, are also expecting a Labour victory and are selling the size of the majority at 58 seats.
"This is what our clients are saying," said Karim Fatih, politics specialist at IG Index. "Market forces have driven prices down from an opening price of a 66-72 seat majority to a Labour majority of 58-64."
One IG Index customer has bet £1,000 on a Labour majority of 66 seats. Should Labour return to power with an unchanged majority of 161, the punter will have to pay IG Index £95,000.
Most pollsters are reluctant to forecast how the share of the vote would translate into numbers of seats because of the considerable margin of error. But a prediction based on an average of polls taken in the past month by Electoral Calculus, the online election predictor, gives Labour a four-point poll lead, which would produce a majority of 106.
A Labour lead of seven points over the Tories, as suggested in the latest ICM poll for The Guardian, could translate into a majority of about 140 seats.
The latest Mori poll for the Financial Times puts Labour and the Tories level on 37 per cent and the Liberal Democrats on 20 per cent. Mori suggests this could slash Mr Blair's majority to just over 50 seats.
.Spread betting firm Finspreads has upgraded its spread betting platform.
Spread betting clients can now leave opening orders online AND attach other orders such as stop losses. This upgrades the previous software where it was only possible to add closing orders to open positions.
This is a major move on their part and gives considerable flexibility to their clients.
For example: The FTSE 100 3 month Spread Bet is quoted at a mid-price of 5100. A client can now enter a limit order to go long (buy) at 5075 and work a stop loss if filled at 5055. |
British spread-betting company IG Group has said it is planning to float its shares on the London stock market.
The move comes less than two years after IG left the London market following a £143m management buyout backed by private equity firm CVC.
IG did not say how much it was hoping to raise from the float, which is expected to take place next month.
IG offers spread betting on financial instruments such as shares and currencies, as well as sporting events.
The spread-betting market has enjoyed huge growth in recent years with investors using it as an alternative to traditional stock market deals.
"This is an exciting time for our industry and the development of our business," said IG Group chairman Jonathan Davie.
"Our IPO will position the group for its next growth phase, whilst simultaneously providing an opportunity for IG to welcome new investors to participate in the continuing success of the group."
As it announced its intention to float, IG Group said turnover for the six months to 30 November 2004 reached £29.5m, up 27.7% on the same period a year ago.
Earnings before interest, exceptional items, taxation, depreciation and amortisation rose 40% to £16.1m.
IG was founded in 1974 by Stuart Wheeler, originally allowing UK residents to speculate on the price of gold at a time when exchange controls prevented them from buying it, except at a premium.
Over the years, its betting business expanded further into financial markets and in the 1990s it began offering spread bets on sporting events.
IG Group originally floated on the London market in 2000. But in early 2003 Mr Wheeler said he wanted to sell his stake in the firm, partly to fund the renovation of his castle in Chilham, Kent.
The company's shares were delisted in July 2003 following the management buyout.
City Index, one of the country's largest spread betting firms, has been fined £35,000 for producing 'misleading' adverts. The Financial Services Authority criticised the company for a promotional campaign for spread betting and contracts for differences (CFDs) between September and November 2003.
The City watchdog said the strategy had the potential to attract customers to high-risk investments without adequately describing the risks.
The campaign appeared in national daily newspapers, magazines and on sandwich shops' bags. The firm was also fined for failures in its internal controls that allowed the promotions to go ahead.
Spread betting and CFDs are considered high risk because they can incur losses well in excess of the initial stake. The FSA said City Index failed to warn investors about this on every advert and where they did, it was not always in a 'simple and prominent manner'.
The FSA also said a promotion referred to a 'free £25 bet'. It said the bet was not free because customers had to place an initial spread bet through City Index. 'The customer could lose all, and potentially much more, of the customer's initial spread bet before becoming entitled to the 'free' bet,' it said.
'Providing clear, fair and not misleading financial promotions is a key priority for the FSA because of the potential impact that misleading promotions can have on consumers,' said Anna Bradley, director of the FSA's retail themes division.
'We fully accept the FSA's comments,' said Clive Cooke, City Index chief executive. 'We have already taken steps to ensure that financial promotions contain an adequate description of the risks involved with spread betting and contracts for differences. In addition, we have strengthened our controls and procedures for the communication of financial promotions.'
He added that City's adverts at the time were in line with the rest of the industry and that the company had received no complaints from customers about the campaign.
Spread betting has seen phenomenal growth in recent years, with investors drawn to make money even when markets fell. However, the companies have attracted the attention of the City regulator.
In December, Cantor Index was hit with a £70,000 fine for a misleading advertising campaign. The promotion offered consumers a free 'Xda' ? a combined handheld computer and mobile phone ? in exchange for signing up to its telephone spread betting service. The FSA said the company failed to adequately highlight the dangers of the investment and targeted consumers who had little experience of spread betting.
The watchdog last year established a Financial Promotions Department. Apart from Cantor and City, it has also taken action against insurer AXA Sun-Life, share-tipping company Hemscott Investment Analysis and Highbury Financial Services for a stock tips magazine called Focus.
Many spread betting traders have been caught on the wrong side of recent sharp moves such as last night's plunge in the Dow and the run-up in Nymex oil to the $57 area.
Some have read the markets right however - one bookmaker reported a couple of very large sellers of the Dow yesterday at 7.15pm immediately after the rise in US interest rates. The index fell 140 points in less than two hours.
Wednesday morning found the majority of punters going short of the FTSE, apparently on the view that the UK index had not reacted sufficiently to the US sell-off.
IG Index said that many of its clients had opened long on the Dow today, looking for a rally from the 10,470 close last night.
On oil, traders are deeply split. IG said that most of its punters are long, eyeing a further rise in the Nymex contract to $60, but Capital Spreads said its clients were generally short - sticking to positions opened before the latest rise.
Both bookies said that customers tend to be long of gold and silver, especially since the recent setback in precious metals has opened things up for a buy-on-the-dips approach.
On currencies, IG said that many punters were long of the dollar against the pound on a contrarian view, but Capital reported client short positions in the dollar against sterling, the euro and the yen.
Among individual stocks, Capital said bulls were in the majority on banks and supermarkets,while bears were in the ascendancy on insurers.