22nd May 2019 08:56
LONDON (Alliance News) - Online trading firm IG Group Holdings PLC said Wednesday it expects its trading revenue to be down sharply in financial 2019 due to the "low levels of volatility and market activity".
IG expects its net trading revenue to be down 17% in the twelve months to May 31 compared to the year before.
"The low levels of volatility and market activity experienced in the third quarter continued into the first two months of the fourth. In the first three weeks of May market conditions have been more favourable and the group's high quality and loyal client base have identified and taken opportunities to trade," the company said.
The reduction in trading revenue was attributed to a 26% decrease in over-the-counter leveraged revenue in the European Securities & Markets Authority region. Over-the-counter leveraged revenue is up 2% in the rest of the world, IG noted.
"Both of these figures are underlying changes, adjusting for the clients who previously contracted with a UK entity who are now trading with an entity outside the European Securities & Markets Authority region," IG added.
IG expects its operating profit to come in about GBP190 million, 32% lower than the GBP281 million reported the year before.
The company reiterated it expects to maintain its dividend at 43.2 pence per share, until its earnings allow the company to resume progressive dividend payments.
The contracts-for-difference provider, separately, issued a strategy update the company hopes will drive growth in the medium term.
IG, for the purposes of its updated strategy, has split itself into two divisions: Core Markets and Significant Opportunities.
Within its Core Markets - which covers the company's operations in the UK, EU, Australia, Singapore and non-EU Europe, the Middle East & Africa - IG intends to take a "more local market focus" by focusing on "segmented target markets". For financial 2019, IG expects to report revenue of GBP415 million within these Core Markets.
Within Significant Opportunities, IG said it will "deploy a combination of four levers" to drive growth. Those "levers" include expanding its distribution channels and offering more products.
In particular, IG said it has identified a potential opportunity to participate in the leveraged securities market for retail clients in Hong Kong. The company will "pursue partnerships" to assess the opportunity.
In financial 2019, IG expects revenue from Significant Opportunities to be about GBP60 million.
"The actions that we have taken over the last two years have resulted in the company successfully navigating the introduction of the European Securities & Markets Authority measures," said Chief Executive June Felix. "I believe that IG has the capability to adapt and thrive in these evolving markets and I am excited by the opportunities we have identified and confident that the Company will return to growth after financial 2019."
Looking ahead, IG is targeting revenue of 3% to 5% per annum from its Core Markets and an increase in revenue from its Significant Opportunities to GBP160 million by financial 2022.
Assuming these targets are met, IG expects total revenue to be about 30% higher in financial 2022 compared to financial 2019.
IG expects, however, that hitting these targets will require additional investment. As such, the company's operating expenses are expected to increase by about GBP30 million in financial 2020, from GBP257 million in financial 2019.
"This is primarily due to additional investment in prospect acquisition to continue to promote the IG brand, to grow the size and quality of the client base, and to establish the new businesses in the EU and the US. In subsequent years the group expects its operating expenses, excluding variable remuneration, to increase at a lower rate than revenue," the company said.
Felix added: "I am looking forward to leading the implementation of IG's new strategy to deliver sustainable growth and attractive shareholder returns."
IG Group expects to release its full year result for the twelve months ended May 31 on July 23.
Shares in IG Group were up 9.1% Wednesday morning at 517.80 pence each.
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