IG Group Holdings PLC (LON:IGG) reported strong third quarter revenues but the online broker faces an uncertain future as strict rules on the spread-betting industry looms, according to analysts at Liberum.
Liberum placed its rating and target price on the stock under review as it awaits regulatory proposals from the European Securities and Markets Authority (ESMA).
The ESMA is considering imposing restrictions on the marketing, distribution and sale of contracts for difference (CFDs) to retail clients and is expected to publish measures in coming weeks.
In its quarterly trading update, IG said it continues to believe that any financial impact from the implementation of measures by ESMA is unlikely to be significant in fiscal year 2018.
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Liberum said: “IG estimates the impact will be no more than 10% of revenues going forward. We believe this might prove a little optimistic but there is no way to be categorical at this stage without knowing what the final rules look like.”
IG reported a 30% increase in net trading revenue to £152.9mln for the third quarter ended February 28 as active client numbers rose 16.5%.
The growth was driven by its core leveraged over-the-counter business, which includes spread-betting and CFDs.
IG said client trading in cryptocurrencies accounted for 11% of revenue in the third quarter, though the market had slowed since the end of January.
“In summary, a great quarter, FY18 consensus numbers should be achievable but new rules from ESMA will be key to determining forecasts from here,” Liberum said.
Shares rose 3% to 843p in late morning deals.