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IG Group sees red as regulation squeezes revenues

The 6% fall in revenues had been forecast in a trading update issued by the trading platform operator in December
CFD with market bear
A crackdown on the sale of high-risk CFDs last year put pressure on IG's earnings

Shares in IG Group Holdings PLC (LON:IGG) fell in early deals on Tuesday after regulatory pressures caused a heavily telegraphed drop in revenues for the half-year.

The FTSE 250 firm, Europe’s largest online trading platform, said net trading revenues in the period had fallen 6% year-on-year (YOY) to £251mln while operating profits had slipped 18% to £112.5mln.

READ: IG Group expects lower first-half revenue after regulatory clampdown

The 6% revenue drop had been anticipated last month when IG issued a trading update saying a ban by the European Securities and Markets Authority (ESMA) the on the sale of binary options to retail investors in July and new restrictions on the marketing of high-risk contracts for difference (CFDs) in August would hit revenues and customer numbers.

The regulations were primarily aimed at protecting inexperienced traders from opportunistic marketing and potentially large losses.

The number of clients trading leveraged products over the counter also dropped YOY to 14,626 from 18,027, although IG noted an “improvement in client quality”.

In the region where the ESMA regulations are enforced revenues for the period had slumped 17% to £145.4mln, although this was partially offset by growth in IG’s non-EU Europe, Middle East and Africa segment of 18% while revenues in its Asia-Pacific arm and Nadex exchange in the US rose 12% and 15% respectively.

The impact of the ESMA measures would also be felt throughout the rest of the year, IG said, predicting that revenues for the 2019 fiscal year would be lower than 2018 while its total operating costs for the year would be similar to the £290mln level from the year before.

However, IG’s chief executive June Felix said she was “confident” the firm would return to growth after 2019, adding that the 43.2p per share annual dividend was expected to be maintained until the company’s earnings allowed it to resume a progressive dividend policy.

In a note to clients, analysts at broker Shore Capital reiterated their ‘Buy’ rating on the stock saying the firm was “a quality operator” that would be able to navigate the new regulatory pressures and “ultimately re-establish a level of growth in a cleaned up industry”.

Shares were down 8.2% at 588.5p.

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