US Edition IG Group
465.3p +3.7
Questor says BUY
Spread betting companies are highly visible to consumers because of the amount of marketing needed to keep bringing customers in the door. Customer churn is a big issue at these companies, but it appears that volatility has been working in IG Group's favour.
In the six months to November 30, the group now expects revenues to rise 25pc year-on-year to £195.6m. This compared with previous guidance of a 23pc increase. The company closed its sports betting business earlier this year to focus on finance and, excluding this operation, like-for-like sales were actually up 28pc.
The revenue growth was driven by a 15pc increase in "active" clients and an 11pc increase in revenue per customer. IG provides spread betting and contract for difference (CFD) services globally.
The collapse of MF Global has presented an opportunity for IG, as the two companies competed directly in Australia, Singapore and, to a lesser extent, the UK. MF Global had 16pc of the Australian retail CFD market and 8pc of the market in Singapore. The group has about £300,000 exposure to the collapse of MF Global, which is negligible.
Extreme market moves in August caused a massive spike in volatility – and led to a record month for IG. However, volatility has eased since then, which is to be expected.
All regions are performing well, with UK revenues up 23pc and Australian sales rising 43pc. European revenues were 41pc higher and sales in the rest of the world region, dominated by Singapore, were up 40pc.
Japan, which has introduced new rules on leverage, remained the problem child – with revenues down by a quarter, active clients down 8pc and revenues per client falling 53pc.
Growth opportunities come from increasing the geographic spread and growing IG's technology platforms to new products.
The shares are also attractive from an income point of view, with a prospective yield in 2012 of 5.1pc, rising to 5.4pc in 2013. This should provide support for the shares even if there is a dramatic fall in volatility. The current-year earnings multiple is 12.4, falling to 11.7 next year.
The shares are up 83pc since their initial tip at 254p on May 10 2009, compared with a FTSE 100 up 23pc.
Questor upgraded the IG Group to a buy from hold at 440p on June 10 this year – and the shares are up 6pc from this level.
The shares remain a buy for income seekers and international growth.