IG Group Holdings Plc Bounces Back After A Game Of Two Halves

Profits at IG Group Holdings plc (LON:IGG) recover after a difficult first six months, but it warns of cost increases ahead.

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IG Group (LSE: IGG) continues to dominate the spread betting market here in the UK, with a 44% market share.  Although its latest financial year was a pretty tough one, by its standards anyway, the shares remain close to their all-time high, and the company seems confident that it has plenty more growth ahead.

Revenues fell 1.4% to £362m for the year ended 31 May 2013, but a focus on fewer but more active customers in its key UK and Australian markets helped profits increase by 3.5% to £192m. There was a similar increase in the full-year dividend as well, to 23.25p per share.

Thriving on volatility

IG Group, which rebranded its operations as IG during the year, does best when markets are in turmoil, as this tends to drive more trading activity by its clients.

Commenting on its latest results, CEO Tim Howkins said:

“In the first half financial markets were very dull, presenting our clients with fewer opportunities to trade than normal. In the second half, while volatility remained low, a succession of significant news events produced more trading opportunities for our clients. These included the US fiscal cliff negotiations, a sustained period of rising equity markets, a crash in the price of gold, the Cyprus bail-in and a shift in monetary policy in Japan.”

At the moment, two thirds of revenues come from the UK and Australia, but international expansion looks set to be a key growth driver in future. IG moved into Ireland and Norway in the last year, and singled out Germany and Singapore as big growth contributors. It also said it was in discussions to enter three new territories.

Taxing times

Regulation worries are never far away in this type of business, and the focus at the moment is the potential imposition of a European Financial Transaction Tax. IG seems fairly relaxed on this front, saying it expects progress to be slow, and that any tax seems more likely to be levied on cash equity transactions rather than its core business.

The shares fell some 4% to 575p following the release of these results, with investors presumably focusing on comments that costs were likely to rise in the coming year, due to IG investing in building out its business. The current share price values IG at around £2.1 billion and 15 times historic earnings.

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> Stuart does not own any share mentioned in this article.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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