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UK, IG Group Benefits from Market Volatility

IG Group Holdings plc has issued a trading update relating to the six months ended 30 November 2011. It appears that market volatility keeps working in IG Markets’ favour.

IG Group Holdings plc has issued a trading update relating to the six months ended 30 November 2011. It appears that market volatility keeps working in IG Group’s favour. In its pre-close trading update the group now expect revenues to rise 25% year on year to £195.6 million (compared to previous guidance of a 23% increase). IG Index closed its sports division earlier this year to focus on its financial division and, excluding this operation, like-for-like sales were actually up 28%.

IG provides spread betting and contract for difference (CFD) services via its IG Index and IG Markets brands on a global basis. As markets swung wildly over the summer, day traders hoping for a quick punt signed up to the company, leading IG to report record numbers during the month of August, the same month that saw the FTSE dropping more than 7%. However, volatility has eased since then, which is to be expected although it remained higher than in the previous year.

Geographic analysis of results

UK revenues increased 23% to £102.1million (£82.9 million in first half of the prior financial year), but the largest area of growth was from its Australian and other ‘rest of the world’ divisions comprising Singapore, the US and South Africa, which rose 43% and 54% (£14.5m) respectively. The revenue growth was driven mainly by a 15% rise in active clients and an 11% increase in revenue per customer. The Group’s European offices achieved revenue of £37.8m compared to £26.7m in the prior year. Growth rates for the established offices were Germany: 46%, Italy: 40%, Iberia: 36%, and France: 31%. The Group’s most recently established European trading offices in Sweden and the Netherlands are at very early stages, but have contributed £1.8m of revenue compared to £0.7m in the corresponding period of the prior year. The Group’s US regulated exchange – NADEX continues to achieve steady recruitment of direct retail clients.

Japan which introduced leverage restrictions remains a thorn in IG’s backside with revenues down by 25% to £8.4m, active clients down 8% and revenues per client falling 53%. Further growth should come from IG’s increasing geographic spread and IG’s continual investment in its technology platforms and new products.

CEO Tim Howkins admitted it was somewhat difficult to find out ‘how much of our growth is market conditions and how much is genuine organic growth’.

The group also benefited from the collapse of USA-owned broker MF Global, which collapsed and filed for Chapter 11 bankruptcy protection in October. The two companies compete directly in Australia and Singapore so this presented an opportunity for IG Markets to grab market share. MF Global had 16% of the Australian retail CFD market and 8% of the market in Singapore. The group has about £300,000 exposure to the collapse of MF Global, which is negligible.

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