IG Group Holdings PLC (LON:IGG) reported a 9% increase in net revenue in the first half but cautioned that the impact of reforms on the spread-betting industry for the year remain uncertain.
In a trading update for the first half to 31 March 2018, the company said the nature and timing of potential regulatory changes in the UK and some other key markets for the group are still unclear.
READ: IG Group reports record quarter despite quieter financial markets, although regulatory worries remain
The Financial Conduct Authority in December 2016 announced plans to crack down on spread-betting, using a financial product known as contracts for difference (CFD).
The regulator had found evidence of poor conduct across the market and raised concerns about investors losing money through CFDs, which allow people to trade on price movements in financial markets, such as stocks and currencies.
The FCA announced in November that it will also begin policing firms offering binary options from January next year over worries about the products leading to fraud in the UK.
Earlier this year, IG said it would no longer offer one of its binary options betting products, Sprints, to new clients but insisted it was not due to the FCA’s clampdown on the industry.
IG adjusting to reforms
In Tuesday’s statement, IG said it “continues to implement measures to differentiate itself further within the OTC leveraged derivatives industry and to protect the business from regulatory change”.
“It remains difficult, however, to predict what impact regulatory change may have on the Group this financial year and beyond,” it added.
The group said that IG continued to “perform well” in the second quarter and that operating costs, excluding variable remuneration, in the first half are expected to be about 7% lower than a year ago after cutting back on advertising and marketing spend.
IG maintained the guidance issued in July for operating costs, excluding variable remuneration, for the full year to remain broadly unchanged from the previous year.
IG's market position should improve, says Numis
Numis reiterated a 'buy' rating and target price of 697p, saying the first half revenue growth was ahead of its forecast of 8% as restructures ahead of expected regulatory changes.
"As the CFD industry matures and regulation is introduced to restrict the activities of the less scrupulous providers, we believe IG's market position
should improve," the broker said.
"We see this enhancing the quality of the group's income and believe its best in class practice will ensure that it is less negatively impacted from regulatory change. We expect the number of providers to shrink, as many of IG's smaller competitors are already struggling to break even."
Shares gained 4.21% in morning trading.