US Edition IG Group
363.3p +3.3p
Questor says HOLD
After moving into new territories over the past few years, the company appears to be having some success, despite continuing problems in Japan.
According to the company, the near-unprecedented volatility in financial markets in October 2008 disproportionately impacted its UK business because of its client base's greater exposure to banking and financial shares.
Although revenue in the UK was flat in the first six months of the year, the group's Australian business saw revenues grow 64pc to £22m in the first half and by 74pc in the second quarter to £12m.
In mainland Europe, revenues grew 65pc to 22m in the first half and by 55pc to £13m in the second quarter. Its office in Singapore saw revenues increase by 22pc in the first half to £5m.
Growth in these new markets is expected to continue into the second half of the year and comparatives will soften over the rest of the year.
The company, which allows investors to bet on movements in share prices, indices and commodities, said that it expected to report six-month group revenues of about £142m, which is 13pc ahead of last year. Adjusted pretax profit is expected to rise by 32pc.
The group's shares tumbled earlier this year after more stringent credit risk management caused UK revenues to fall – but this prudence appears to have paid off. The charge for doubtful debts in the first half is expected to be less than 0.5pc of revenue, compared with 12pc in the first half of last year.
The group opened 32,000 new accounts in the first half, excluding its Japanese business, where the market remains challenging.
The company bought Japanese unit FXOnline in October 2008. However, Japanese regulators are trying to place limits on the amount of leverage investors can hold in foreign exchange positions.
Progressive limits will be introduced starting from next year, but the full details of the new rules have yet to be finalised as a consultation process continues.
IG is trying to make changes to its business in the country, steering customers towards contracts for difference (CFDs) rather that foreign exchange trading.
But revenues in Japan the second quarter of this year fell to £5m from £6m in preceding three months. However in October, the unit moved to a new fixed spread model and early signs are said to be encouraging.
Across the whole business costs will be higher in the second half of the year because to its recent increase in headcount. Brokers are preparing to upgrade their full-year expectations after the update.
Shares in IG Group were recommended as a buy on January 21 at 254p and are now up 43pc, compared with a market up 29pc.
They are trading on a May 2010 earnings multiple of 13.9 times falling to 12.9 next year, which is reasonably full.
However, the shares' dividend is a respectable 4.4pc meaning that they are well worth holding on to.