IG Group earnings beat forecasts after four-year hiatus

IG Group posted full year results on Tuesday that beat market expectations, with earnings breaking higher after a four-year stagnation.

The spread-betting, contracts for difference and forex trading provider increased trading revenue 14% to £456.3m in the year ended 31 May, ahead of the company-complied consensus analyst estimate of £448m.

Slightly more than 100,000 new accounts were opened in the year, 42% ahead of the prior year, and the second half of the year was 35% ahead of the first half, with the new share dealing service in the UK gaining 11,000 funded accounts of which around 2,900 were active clients by year end.

This fed through to a pre-exceptional profit before tax of £207.9m that was up 8% on the previous year and beat the consensus forecast of £204m.

Adjusted diluted earnings per share were lifted 9% to 44.6p versus consensus of 43.8p, also breaking out of the tight range of 38-42p for the last four years as management investing heavily to broaden the business via extension of products and geographies and develop the platform.

A final dividend of 22.95p per share hikes the full year dividend to 31.4p, 11.5% higher than last year.

Looking forward, chief executive Peter Hetherington has plenty of plans for further expansion, including the UK launch of a 'limited risk accounts, plus also a portfolio-based investment product in partnership with asset manager BlackRock that will expand to Australia in due course.

IG is also approaching the end of the testing phase for a new web trading platform and expect to release it before the end of this calendar year.

"Demand for our products and application numbers remain strong," Hetherington said. "Given this demand, and the improvements we have made to our online targeting capability, we intend to increase marketing investment again significantly this year, as long as the payback remains compelling."

After being stung by a high staff attrition rate in London the board carried out a benchmarking review and hiked salaries, which means the overall absolute rise in operating costs in the 2017 financial year is now expected to be in line with the increase last year, on an underlying basis.

"We made good progress in 2016, strategically, operationally and financially. The business starts this year in good shape, and we are delivering a number of initiatives which should continue to support future growth."

Analysts at Shore Capital said the cost guidance could limit any prospect of forecast upgrades on the back of what were a good set of results.

"We think IG is a good business now emerging from a period of heavy investment which had caused earnings to stagnate over the last four years," said ShoreCap. "Growth now seems set to resume (albeit costs also increasing by more than we had expected), assisted in the short term by increased volatility, but our issue, as it has been for the last 12 months, is aligning the rating with the expected profit growth."