IG Group embraces new FCA rules as results show 2017 net trading revenue up 8%

IG, one of the largest spread betting and CFD brokers in the UK released their 2017 results showing a 38% increase in new clients. With 15% coming from OTC leveraged business.

If you’re not over au fait with what “OTC Leveraged” means it’s basically clients trading on margin through products like spread betting and CFD trading.

What’s interesting about IG’s position in the spread betting market is that over the last few years they no doubt lost a lot of business to smaller firms who could entice clients with deposit bonuses and rebates.

However, as the FCA will shortly be putting the kibosh on that sort of thing, it only strengthens IG’s appeal.

Clearly being the biggest by market share ( according to the Investment Trends UK Leveraged Trading Report released July 2017) and by market cap (currently £2.2bn) they will not always be the cheapest, but some may view as the safest.

After all, they are pioneers of the industry, listed on the LSE so they have to report more frequently and are subject to greater governance. But then again, so were MF Global, and look what happened to them…

After the results were released the IG share price had a nice little move up of around 15%, but this pales in comparison to the battering they have taken when the FCA announced the leverage cap rules when the share price dropped 40% from 800p to 485p.

IG do have a plan for this though, they do say tucked away in their results that clients may have the option to upgrade their FCA classification from retail to professional.

But, if clients do that they lose some of the protection that FCA accords retail clients. Which is particularly important for events like when the Swiss unpegged the CHF. 

However, as you can see from the below chart despite heavy client and firms losses along with a lot of bad publicity, it’s didn’t really have a material impact on the IG Group Share Price.

Financial highlights are below, along with the statement from the CEO. You can read the full set of IG Group 2017 results here.

Financial Summary

  • Net trading revenue(1) up 8% at £491.1 million
  • Operating expenses up 14%, reflecting continued investment in effective marketing
  • Profit before tax up 3% to £213.7 million; profit before tax margin(2) 43.5% (FY16: 45.6%)
  • Diluted EPS up 3% at 45.9 pence
  • Final dividend of 22.88 pence per share; full year dividend up 2.9% to 32.3 pence per share

Operating and Strategic Summary

  • New client numbers, defined as first trades, ahead of prior year by 38%; 15% in the OTC leveraged business
  • Purchased and integrated the assets of DailyFX, a global retail FX research and education portal, for $40 million
  • Continued progress in strategic evolution towards leadership in trading and investments
    • Share dealing offer rolled out to Australia and France
      Launched a discretionary managed Investment service in the UK
    • Limited Risk account, with no-negative guarantee, rolled out globally
    • New platform released to all spread betting clients
  • Regulatory uncertainty created by a number of developments during the year
    • IG is compliant with the results of consultations from BaFin and the AMF
    • FCA delayed final industry regulatory proposals in June 2017, pending the outcome of ESMA’s discussions

Peter Hetherington, Chief Executive, commented:

“It was an interesting and challenging year in terms of global news flow, especially in the political and regulatory sphere, but the year turned out to be one of the least volatile in financial markets for decades. Against this backdrop I am pleased that IG once again delivered record revenue and profits. The industry came under elevated regulatory scrutiny during the year. At IG we are proud of our track record of compliance and our culture of placing the client at the heart of our business. We try to do what is right, not just what is possible under the rules. We understand that leveraged trading products aren’t right for everyone, and we therefore believe that it is in the best interests of many consumers to be prevented from accessing them. We seek to only offer our products to an appropriate audience and consistently innovate to improve client outcomes. IG’s Limited Risk account, where clients can never lose more money than they have on their account, and their maximum risk per position is known, is a good example of this type of innovation. A third of our new trading accounts in the UK now use this feature.

 

Unfortunately client outcomes in the industry have suffered in recent years – unsuspecting consumers have been bombarded by providers who market the leveraged product to an inappropriate audience, often using bonus offers to attract clients. This is clearly wrong and we fully support regulators’ attempts to stamp out this behaviour. Our efforts are concentrated on ensuring that appropriate clients can continue to trade on a level playing field. IG will continue to carefully consider and improve its procedures to ensure we either set or achieve industry best practice. We have a very long history of engaging constructively and productively with all our regulators and we look forward to continuing to do so.

This external uncertainty is unsettling for our people and I am proud of the way they have pulled together to accelerate the differentiation of our offering. This has involved some difficult choices, as we have reduced running costs to give us scope to invest in strategic projects.
As the original and the biggest firm in our industry, I believe IG is well placed to evolve and prosper and to continue to empower our clients to access opportunities in financial markets.”

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