Market turmoil drives record business for IG
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Tuesday 23 August 2011
The spread betting group IG has emerged as a winner of the recent market turmoil, with stock market volatility boosting the FTSE 250-listed company's sales.
The market swings led to an increase in volumes, as traders and investors rushed to move their money about. This in turn drove business for IG, which said yesterday it had seen "record levels of client activity in the recent market volatility despite it being holiday season" in most of its territories.
The result is that the spread betting group now expects revenues in the three months to the end of August to climb to more than £94m, significantly above the £79m seen in the same period last year.
"This would represent growth of at least 19 per cent," IG said, adding that, at the same time, its "credit management processes have proved robust and it is anticipated that the doubtful debt charge for the quarter will be less than 1 per cent of revenues."
The recent volatility has seen London's FTSE 100 index go from closing highs of above 6,000 as recently as early July followed by lows around the 5,000-point mark.
That was followed another rally of more than 300 points before the index retraced its steps south last week. Along the way, investors have witnessed sharp gyrations that have threatened to push the blue chip index into bear market territory. Similar movements have been seen in markets around the world, driving volumes for spread betting companies like IG.
Analysts welcomed the update, with James Hollins at Evolution Securities saying that investors should focus on the "stellar" trading result and not worry about recent German and French plans to impose an EU-wide financial transactions tax – something that could hit companies like IG.
German Chancellor Angela Merkel and French President Nicolas Sarkozy mooted the idea last week as they attempted to solve Europe's debt problems.
But Mr Hollins played down the prospect, noting opposition was "too great, notably from the UK".
"We do not think the German/French proposed EU financial transactions tax will be introduced anytime soon and, further, IG could potentially take action to negate the tax," he said. "We therefore urge investors to focus on stellar current trading and the group's existing ongoing augmentation of its market share in the core markets of the UK and Australia."
Andrew Mitchell at Charles Stanley also noted the "pro-volatility" nature of the business. "A concern must remain that activity freezes if we return to deeper financial crisis but, absent this, continued market volatility should be helpful for revenues and deliver better than estimated margins and earnings," he said.
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