Online trading giant IG Group PLC (LON:IGG) saw its revenues fall in the third quarter during “a quiet period in global financial markets” and against an uncertain regulatory background, sending its share price lower, although it added that the fourth quarter had “started better”.
In a trading update for the three months to 28 February 2017, the FTSE 250-listed firm said its revenue was £117.4mln, 3.8% down on what was the strongest quarter of the prior year.
The group noted that active client numbers were up 13%, driven by ongoing success in online marketing, with new first trades in the period over 20% higher than the prior year.
But revenue per client was down by 15%, with current clients trading less often in the quiet period and with continued growth in the non-leveraged business and Nadex, where average revenue per client is significantly lower.
IG said, however, that the fourth quarter has started better, although it added that it “is impossible to predict the market conditions for the rest of the year or to draw precise conclusions at this stage.”
UK weak …
The firm said third-quarter revenue was ahead in all its regions except the UK, with a strong performance in the Rest of the World driven by good growth in the US, Dubai and South Africa.
It added that revenue in the UK was down 15%, with the prior year performance being particularly strong.
The group said: “More mature markets tend to outperform in more volatile periods as the large installed client base reactivates, as happened in the prior year, and underperform in quieter conditions.”
IG's stockbroking business continued to grow well in the period in both the UK and Australia, with just over 16,000 clients holding a position at the end of February.
Regulation uncertainty …
The firm pointed out that following moves in the UK, Germany, and France to crack-down on contracts for difference (CFDs) trading, the “regulatory backdrop for leveraged trading in a number of countries remains uncertain.”
Over the last few months, IG said it has responded to regulator consultations in the UK and Germany and worked closely with the regulator in Dubai.
READ: IG best placed to withstand new CFD regulations …
It added that is also now working on its responses to consultations in The Netherlands and Ireland.
IG said it was “pleased by the clarity provided in France, which means that the Limited Risk Account the Company offers there is entirely compliant with the new legislation.”
It added: “As clarity is provided on the conclusions of outstanding regulatory consultations, the Company will update the market as appropriate.”
The group concluded: “As the Company enters this final quarter, none of the announced regulatory changes has yet had any impact, client recruitment remains strong and the underlying business is performing well.”
Shares drop ...
In early trading, IG was the top FTSE 250 faller, shedding 5.4%, or 28.5p at 495.5p.
In a note to clients on IG, Shore Capital analyst Paul McGinnis said: “Q3 trading update leaves lot to do in Q4. IG’s Q3 update falls in the slightly strange period after the closure of the FCA (Financial Conduct Authority) consultation on 7th March, but before the final conclusions are published, expected late May/early June (potential leverage limits of 50:1 are the most significant aspect).”
But he added: “As such, the importance of a three months trading period is somewhat secondary to the investment case at present.”
Reiterating a ‘hold’ rating on IG, the analyst concluded: “Clearly any forecasts beyond the current year remain subject to potentially material revision depending on the final determination but, on the basis of our current estimates, our last published fair value of 570p doesn’t give enough margin of safety to take a more positive stance.”
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