IG Group's interims impress after record second quarter

20th Jan 2015 08:38

Forex and spread-betting provider IG Group posted a strong set of interim results, though the surprise actions of the Swiss National Bank last week caused a wave of client currency losses that led to a £30m hit on the company and have put this year's final dividend at risk.The London-based group, which opened a Swiss office in October and launched a UK stockbroking business in September, recorded record revenue in the half year after a subdued first quarter, with net trading revenue accelerating 8% at £197.4m after a powerful second-quarter.Profit before tax was 2.8% higher to £101.4m and diluted earnings per share up 5.4% at 21.44p.Three and a half months after opening its stockbroking business, IG has around 1,700 clients who had opened and funded an account, with over 60% of the applications having come from new clients.A record second-quarter revenue of £112m helped the company deliver its strong revenue performance despite a record month in October being followed by a subdued patch in November.Management said the second half began with an "unseasonably strong" December, as newsflow drove volatility in financial markets and presented exciting opportunities for clients, which "heightened activity levels" have continued into January.But, as warned last week, at the revenue level, this upside was then negated by the impact on the group of the sudden movement in the Swiss franc, after Switzerland's surprise scrapping of its currency peg against the euro that led to huge swings in the value of the franc, euro and other currencies.On outlook, management said IG remained "on track to meet revenue expectations for the year, although profit and earnings will be negatively impacted by client debts associated with the Swiss franc movement"."If full year diluted earnings per share were to be lower than last year purely because of this highly unusual event, the board's current intention would be to maintain the full year ordinary dividend at last year's level."Said analysts at Liberum: "The only minor concern is growth in Europe, where first-half revenue only grew by 0.5%."Canaccord's Arun Melmane noted management's admission that it seeks to learn the lessons from the recent £30m loss and implement them into its risk management systems and wondered "what these lessons are" given that £18m was client credit losses "implying that a certain level of leverage was allowed for its client positions". "The recent loss event leaves the investment case far from risk free in an environment with increased volatility and the possibility of further central bank intervention."Given that IG trades at a "premium" valuation of 16 times forward earnings, Melmane added: "Given the scale of cash generation, IG was able to sustain the recent losses but consensus tracking lower could prove negative for sentiment. IG's risk management systems are far from risk free and the increased propensity of central banks to intervene in the market could create further loss events were markets to move suddenly."