IG Group's Shares Slump As Profits Crash 21%


LONDON -- The shares of IG Group slumped 24 pence, or 5%, to 444 pence during early London trade this morning after the spread-betting specialist admitted its underlying profits had crashed 21%.

The earnings shortfall was revealed within half-year results that blamed "the longest sustained period of low volatility for over five years and trading volumes in underlying markets at multi-year lows" for net trading revenues diving 14% to 169 million pounds.

The FTSE 250 firm also cited "continuing global economic uncertainty, fragile consumer sentiment and the ongoing market intervention by the Bank of England, the Federal Reserve and the European Central Bank, which is dampening market reaction to newsflow" for good measure.

IG acknowledged steady markets had caused fewer clients to trade and lower numbers of new clients to open accounts.

The effect was spread across IG's business, with U.K., European and Australian revenues all down between 14% and 15%.

At least the dividend was held at 5.75 pence per share and the balance sheet carried net cash of 108 million pounds.

Tom Howkins, IG's chief executive, said:

We continue to maintain an appropriate level of investment in IT and marketing, mindful of the need to balance short-term profitability against investment for the long term. This, along with our strong financial position, supports the increasing market lead we have in a number of the countries in which we operate and we believe will help deliver industry-leading growth rates over the longer term.

Howkins added that if current levels of client activity persisted, second-half revenues were likely to match those seen in the first half.

Prior to today, City experts that followed IG were expecting current-year earnings to slide 8% to 34 pence per share and the dividend to be held at 22.5 pence per share. The projections equate to a P/E of 13 and a yield of 5.1%.

The present rating looks reasonably fair, especially as IG's dividend increased by 88% between 2008 and 2012 despite the banking crash and subsequent recession.

Indeed, such dividend resilience could make IG a possibility for Neil Woodford, the legendary contrarian fund manager whose high-income portfolios thrashed the FTSE during the 5, 10 and 15 years to October 2012.

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