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London Capital (LCG.L) - positive trading update
LCG.L
Comment by Objective Capital , Jul 03, 2007
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The group reported today that it expects group profit before tax for the six month period ended 30th June to be around 50% ahead of original management expectations for 1H07. It further stated “As we have previously stated, delivery of strong results depends on growth in client interest across our product offerings and also on volatility in the markets in which we are active. We are pleased to note that both these factors have been favourable during the first half.”
Operational highlights:-
- Capital Spreads quarterly client acquisition rate has more than doubled in 2Q07 compared to 4Q06;
- Capital Forex quarterly volumes have also increased more than two fold over the same period;
- five spread betting white labels have been signed in 1H07;
- it is the Board's current intention to pay an interim dividend of 1.25 pence per share.
Objective's view:
Although we will have to wait for the publication of 2007 first half results in August for detailed figures, it is clear from the tone of the trading update that this will be a sparkling set of results. Perhaps the most telling clue is the proposed interim dividend. At the time the 2006 results were announced LCG proposed a maiden dividend of 1.7p, just four months later, in a show of confidence the Board has announced its intention to pay a 2007 interim dividend of 1.25p.
Market conditions have generally been favourable for spread betting this year and the rate of client acquisition has continued to accelerate. A trend that we believe will continue with the signing of the white label agreements.
As we pointed out in our initiation report on 17 May 2007 LCG’s business model is highly scaleable both for spread betting and Foreign Exchange allowing the company to handle far higher volumes without a corresponding increase in either staffing levels or overheads. The outcome of which should be a further increase in profitability.
The company did state that it had introduced IT enhancements to ensure future scaleability but we believe that this has been an ongoing process throughout the last twelve months or so and as such is unlikely to prove a discernible brake on profits growth.
At the time of our report we were showing revenue and earnings growth ahead of consensus for 2007 and 2008 and remain confident that approach was correct. That said we will wait for publication of detailed numbers before revising our forecasts.
