Leading UK online spreadbetting and financial trading firm IG Group Holdings plc (LON:IGG) has just posted its financial and operating metrics for the second quarter and the first half of its fiscal year 2016.
In tune with a previous forecast, the company saw its revenues grow in the quarter to November 30, 2015, as they reached £108.9 million, up from the result of £106 million registered in the preceding quarter.
The robust second-quarter metrics added to a solid result for the first half of the fiscal year, as IG delivered record revenue in the half of £214.8 million, up 8.8% on the first half of the prior year (2015: £197.4 million). The company noted that the period was characterised by bursts of volatility in the financial markets, presenting more trading opportunities for its clients.
Pre-tax profit for H1 FY 2016 was £98.6 million, down 2.8% from the same period a year earlier (2015: £101.4 million). The reduction in pre-tax profit was attributed to an increase in headcount and marketing costs to support the ongoing investment in IG’s strategic initiatives to deliver future growth and diversification.
Client numbers for the first half rose 11% from the corresponding period a year earlier. Revenue per client was 2% below the first half of the prior year, but 2.1% up on the second half. The number of new clients in the period, measured by first trades, was 35% above the prior period and the higher monthly level was maintained through the second quarter.
Across regions, the UK marked a 3.4% rise in revenues in H1 2016 from a year earlier. The stockbroking offering has now been live in the UK for over a year, with IG witnessing steady progress and a consistent number of new clients signing up to the service every month. There continues to be an encouraging number of new clients, who come in through the stockbroking service, going on to trade IG’s leveraged offering.
In Europe, the rise in revenues was 13%, in Australia the rise was 5.7%, whereas the Rest of the World (Singapore, Japan, South Africa, Dubai, as well as Nadex in the US) revenues jumped 33% from a year earlier.
Product diversification
After launching the execution-only stockbroking offering in the UK and Ireland in September 2014, IG has since extended it to the Netherlands, Germany and Austria. The company has registered more than 7,000 funded accounts as of the end of November. The majority of these clients are new to IG, and a number are going on to use the leveraged products. To accelerate the growth in the second half of this financial year, IG plans to add SIPPs to its offering, and is reviewing its charging structure with the intention of adding cost leadership to its current execution leadership.
In July, IG announced its partnership with BlackRock to launch ETF-based investment portfolios. Initially, IG intends to roll out this product in more mature markets of the UK and Australia, where the company has an established presence and brand, and a high market share in retail leveraged products. In its less mature markets, its concentration will be on the opportunity within the current leveraged product set, which remains compelling.
IG also continuously reviews its core leveraged product, and it recognises that even within this arena there are a range of client categories. To address this, IG is designing a new leveraged account which will assist less experienced clients to better manage their risk/reward balance. This account will ensure that these clients can never have a debit balance on their account. The security offered here should enable IG Group to accept more clients and maintain a trading relationship for longer.
In addition, over the last 12 months, IG has been working on an entirely new front-end web trading platform. It expects this to go into trial with a small number of clients this month, and intends to roll out the first iteration around the middle of 2016.
IG stresses the importance of mobile. Within the next few years, the company expects the majority of client transactions to come through mobile apps, and for this trend to replicate itself right through the client cycle. IG is currently setting up an operational and development hub in Poland and, in conjunction with its core team in London, it will focus on keeping IG at the forefront of mobile trends.
Geographic development
IG’s most recent new offices in Switzerland and Dubai are performing in line with plans. Sweden and Norway, which were, by some margin, the fastest growing established European offices in the first half of the year. IG is also currently considering opening an office in one more European country in 2016.
In China, IG has an established a representative office in Shanghai and a small local team, led by a senior secondee from its Australian office. Although recent developments in China appear unsupportive to further liberalisation in the capital markets in the short term, IG notes it has never considered this a short term opportunity. In the meantime, it continues to have dialogue with possible future partners in this market.
Dividend
As announced in July 2014, the Board established a formulaic approach to the interim ordinary dividend each year, such that it is calculated as 30% of the full year ordinary dividend for the prior year. Accordingly, IG has declared an interim dividend of 8.45 pence.
Current trading and outlook
Peter Hetherington, Chief Executive, commented,
“Half way through the year IG remains on track, and, although it is impossible to forecast what opportunities the markets will offer our clients over the next few months, the second half has started well. I have taken over as CEO of a company in great shape, with a number of strategic options and a broadly supportive macro backdrop. I am pleased with the progress we are making on the initiatives which will underpin the future growth of the company, but I am also acutely aware of the level of investment our shareholders are supporting and our need to produce returns which match our ambitions and their expectations.
The rate of growth in investment spend is already moderating, having now almost established the appropriate resource and skills to allow us to develop the current business and exploit our other growth initiatives. Beyond the existing guidance for this financial year, the increase in operating costs is likely to be much more inflationary and discretionary in nature, with any discretionary element being primarily marketing related, and then only if the payback remains compelling. I am supported by a great team at IG, and I am confident that we will deliver on our strategic initiatives and drive growth into the future.”
You can view the official announcement from IG Group on its financial results by clicking here.