IG builds for future

Spread-betting group IG (IGG) was always going to struggle to make progress this year after having seen its business boosted last year by extreme levels of market volatility. So pushing second-quarter revenue up by 7 per cent on the first-quarter's outcome was a decent performance in the circumstances - although revenue was still down 9 per cent from a year earlier.

The UK remains the group's biggest market and income in the first half slipped 15 per cent to £86.9m, as active client numbers dipped 14 per cent, while revenue per client fell 1 per cent. Similar trends were reported in Australia and Europe and, while the number of active clients in Europe actually increased by 9 per cent, this was more than offset by a 22 per cent fall in revenue per client.

Steps have been taken to relaunch the IG brand, including the rollout of the group's mobile applications, and initial indications are pointing towards a greater proportion of clients opening accounts and trading through mobile applications. This is important because, although client activity has been subdued for the most part, IG continues to increase its market share, which in the UK grew from 41 per cent to 44 per cent of the spread-betting market, while its shares in CFDs (contracts for difference) rose from 24 per cent to 32 per cent.

Numis Securities says...

Buy. With a lack of profitability among IG's competitors, we expect further casualties and consequent market share gains for IG. The key ingredient is volatility and, while this remains low, there isn't likely to be much good news. However, we believe that spread betting and CFD trading is in its infancy. Moreover, IG is well-placed to weather the current lull, with over £230m of cash on the balance sheet and a hefty dividend yield well covered by earnings. Expect 2013 full-year pre-tax profits of £173.2m and EPS of 35p (from £185.7m and 37.5p in 2012).

Investec Securities says...

Buy. Volatility is the prime driver of revenue growth, but IG can take comfort from customer retention, emerging markets growth and increased market share. We are retaining our buy recommendation, but feel that we were a little too aggressive in assuming a minimal rise in salary costs. Accordingly, we have reduced our 2013 estimates by 8 per cent to pre-tax profits of £178.2m and EPS of 33.4p. Profits in 2014 are expected to jump to £183.7m, with EPS rising to 139.6p, supported by a significant reduction in bonus payments and a return to more normal market conditions.