IG Group still confident despite growth slowing in second quarter

IG Group, the spreads and stocks broker, saw growth slow in the second quarter after a barnstorming first, though revenues were still higher and costs lower than the same period last year.

IG said net trading revenue in the first half is expected to be around 9% higher than in the same period a year ago, which implies a figure of just under £267m.

This means growth slowed sharply from the 21% rate in the first quarter to what appeared to be a slightly negative second quarter versus a very strong second quarter last year, with net trading revenue of £133.5m that ended up representing 27% of the full year amount.

The FTSE 250 group said operating costs excluding variable remuneration in the first half are expected to be around 7% lower than in the same period a year ago, primarily reflecting a lower level of advertising and marketing spend.

Management said that operating costs excluding variable remuneration are still expected to remain at a similar level to the previous trading year, as guided in July.

Again, the company pointed out that potential regulatory changes in the UK and some other key markets continues to hang over the industry.

"The company continues to implement measures to differentiate itself further within the OTC leveraged derivatives industry and to protect the business from regulatory change," IG said. "It remains difficult, however, to predict what impact regulatory change may have on the group this financial year and beyond."

The European Securities and Markets Authority is expected to deliver its review of the leveraged trading market in January, with the UK Financial Conduct Authority having deferred the introduction of its own proposals until ESMA reports in order to harmonise any changes across the EU.

IGG shares climbed more than 4% in early trading to 679p on Tuesday.

Broker Shore Capital suspected that some of the 9% growth in the second quarter will have been driven by trading in crypto-currencies such as Bitcoing, which was a very small activity in the prior year.

ShoreCap calculated that the implied Q2 figure of £131.7m, which was down around 1% versus a strong comparative quarter last year would be circa 25% of its full figure of £521.5m, which had already been upgraded from £503.6m after the strong Q1 update.

IG would need to average £127.3m in Q3 and Q4 to meet this full year forecast, which would be mean the second half would need to deliver year-on-year growth of 3%.

"The bigger picture remains dominated by regulation," the broker said, suggesting the ESMA review could include a combination of measures involving restrictions on marketing, tighter on-boarding procedures and the use of leverage caps, with the latter being the most material to forecasts.

"Unfortunately, the risk of material forecast changes (in either direction) remains possible meaning we would look for a wider-than-usual margin for error around our last published 670p fair value, which is based on cleaned-up post regulation industry in which we expect IG to be a potential beneficiary."