IG Group says interest in cryptocurrencies has waned, looks forward to other markets

Maria Nikolova

“The level of client activity in cryptocurrencies has slowed markedly since the end of January, and accounted for 3% of revenue in Q4”, IG says.

Electronic trading major IG Group Holdings plc (LON:IGG) has earlier today posted its results for the full year to May 31, 2018, providing some updates on its assessment of the impact of the latest EU regulations on its business and, of course, giving information about its financial metrics.

The announcement, filed earlier today with the London Stock Exchange, points to robust performance in the full year, as net trading revenue in FY18 was £569 million, 16% higher than the prior year. Let’s also note that the number is in line (even a notch higher, if we have to be precise) with the £565 million in full-year revenues projected in May.

“Our clients trade in markets where there are opportunities, and for a period during the year cryptocurrencies provided such opportunities. The interest in cryptocurrencies has now waned, and we look forward to facilitating client trading in other interesting markets this year”, IG said.

The number of active clients in a quarter reached a new record of 99,500 in Q3 FY18, including 12,500 new clients who traded for the first time in that quarter. Interest in trading in that period was heightened by the excitement around cryptocurrencies and by a significant spike in financial market volatility in February.

Client trading in cryptocurrencies accounted for 7% of OTC leveraged revenue in FY18. The level of client activity in cryptocurrencies, however, has slowed markedly since the end of January, and accounted for 3% of revenue in Q4.

Operating profit for the year amounted to £281.1 million, up 32% from a year earlier, with the operating profit margin increasing to 49.4%.

Across regions, the revenue in the UK of £249.5 million was 12% higher than FY17, with the lower level of active clients offset by a 21% increase in revenue per client to £4,166 (FY17: £3,446).

Revenue in EMEA, which includes IG branches in the EU and our subsidiaries outside the EU in Switzerland, Dubai and South Africa, increased 18% to £162.1 million (FY17: £137.5 million). The number of active clients was broadly flat compared to the prior period, with revenue per client up 17% to £3,519 (FY17: £2,997).

IG also commented on the latest changes in the European regulatory landscape. The prohibition on the marketing, distribution or sale of binary options to retail clients came into effect on July 2, 2018. IG stopped offering its Sprint binary product to new retail clients in January 2017, and has now ceased offering binary products to all retail clients in the UK and EU.

The measures relating to the provision of contracts for difference (CFDs) to retail clients will come into effect on 1 August 2018. IG believes that enforcing consistent close-out procedures, putting a negative balance protection per account, restricting trading incentives such as bonus offers, and issuing standardised risk warnings would all improve client outcomes if implemented appropriately, and enforced effectively.

IG continues to believe, however, that the leverage restrictions are disproportionate and go beyond what is needed to protect consumers from poor outcomes associated with excessive leverage.

Regarding the status of its clients, IG noted that clients who were categorised as professional on June 30, 2018, generated over 40% of the Company’s UK and EU revenue in the preceding three months, and the Group continues to expect this proportion to rise to 50%.

As announced in July 2017, IG is developing a multi-lateral trading facility (MTF) for the European market where IG believes there is a significant opportunity in offering exchange traded products. IG plans to offer its own leveraged securities on its MTF. These products are limited risk by nature, making the offering suitable for less experienced clients. The launch of the MTF is planned for the second half of FY19.

Let’s recall that IG has identified potential in the US OTC FX market, where it believes the market is currently underserved. IG filed its licence application at the end of November 2017 to establish a new subsidiary based in Chicago, and has completed hiring for key roles. The Company expects to launch this business in the first half of FY19.

IG has also applied to BaFIN, the German regulator, to establish a subsidiary in Dusseldorf as a response to the UK’s decision to leave the EU. This office will combine the existing German sales office with key management and control positions and will serve as a regional hub for the Group’s well-established EU business. The establishment of this subsidiary will not have any impact on the Company’s UK operations.

In terms of forecasts, IG expects that its revenue in FY19 will be lower than in FY18, reflecting the impact of the regulatory changes in the UK and EU. The company expects to return to growth after FY19.

The Board expects to maintain the 43.2 pence per share annual dividend until the Group’s earnings allow the Board to resume progressive dividends.

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