Looks like it was a good day all around for Gain Capital.
After reporting fairly decent financial results Tuesday morning, shares of retail forex broker Gain Capital Holdings Inc (NYSE:GCAP) shot up 9% Tuesday to close at $8.25 – their highest level in about two months, and stemming what can best be described as a slow decline and disinterest in GCAP shares.
A major concern for investors after an M&A deal in the Forex sector is whether or not the acquired company’s clients will indeed remain on board and trade after the acquisition – even in cases such as City Index, which has retained its own brand and website after being acquired. Following Q2’s fairly disappointing results from Gain Capital, investors were clearly skeptical as to whether or not its investment in buying City Index was going to work out as planned or not – hence the steady decline in share price.
However Gain’s Q3 report seems to have put some of those concerns to bed – at least for the time being. Gain’s revenues rose a healthy 15% QoQ to a record $127.9 million. Its margins remained intact (left graph below). And digging deeper into the numbers, Gain Capital’s product ‘mix’ for Q3 clearly showed the positive impact of the City Index deal, with less than half of Gain’s overall volume coming from FX trading.
For the first time the largest component of ‘volume’ at Gain was Indices trading (right graph above) – a favorite among UK spreadbetting traders. And again, a clear indication that City Index clients are comfortable with the new sheriff in town.
Gain Capital still has a ways to go – its shares remain well below Gain’s 2010 IPO price of $9 a share, and its late 2013 all-time high in the mid-teens. It has yet to deliver on the $40 million+ in ‘cost synergies’ it has touted since announcing its plans to acquire City Index early this year. But Gain seems to be moving in the right direction, and investors seems to have finally taken notice.