IG Group Q1 revenue drops in UK & Ireland amid subdued markets

FTSE 250 spreadbetting firm IG Group said it performed well in the three months to the end of August in what was a challenging quarter, although revenue in the UK & Ireland weakened as markets became increasingly subdued after Brexit and revenue per client declined.

In the first quarter of its 2017 financial year, revenue was up 5.1% on the previous year at £111.4m. Revenue in Europe was 13% higher at £23.4m, while revenue in the Rest of World was up 18% at £16.4m, and In Australia, it was up 9% at £16.2m.

However, revenue in the UK & Ireland was fell 1.8% to £55.4m.

Meanwhile, active client numbers were 18% higher than the prior year but revenue per client was 11% below.

“As announced on 24 June 2016, IG increased client margin requirements approaching and during the volatile period surrounding the UK's EU referendum in order to preserve long term relationships and value; this had the effect of constraining client trading during this time."

The company said financial markets in July and August became increasingly subdued following the UK’s vote to leave the European Union, presenting limited trading opportunities for both current and new clients.

IG said the level of new client first trades was very strong in the period, supported by increased effective marketing spend. At a group level, this metric was ahead of the previous year period by 70%, reaching a new record level, with increases in every region, and ahead of the final quarter of last year by around 30%.

The increase in the number of new clients was once again most marked in the UK – up 24% – and in late June. IG said a high number of new clients beginning part way through the period, combined with the quieter end to the quarter and the ongoing growth of the stockbroking business, resulted in the lower average revenue per client in the UK.

“Looking forward, IG has a clear strategy to deliver future growth and will continue to execute against the priorities that underpin it.”

RBC Capital Markets said that while the growth in active clients is encouraging, the decline in revenue per client more than offsets this.

The Canadian bank said: “We believe that IG has good characteristics – a high margin business that generates significant free cash flow, with a 70% pay-out ratio – but that the low levels of market volatility will likely weigh on earnings, and trading at over a 50% premium to its closest peer, we believe the risk is to the downside.”

At 0832 BST, IG shares were down 5.8% to 872p.