London Capital (LCG.L) - concentration on tight spreads powers growth LCG.L
Full Report by Objective Capital , May 18, 2007(login for full report) Questions?
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Key Points:
Capital Spreads continues to exceed the market’s 20%-25% p.a growth
London Capital’s spread-betting arm continues to grow faster than its
competitors, increasing turnover by 68% in 2006. We believe that this growth
will continue in 2007, with the number of client accounts, the average number
of trades per day and amounts on deposit all continuing to grow.
Scaleable business model
The spread-betting business is highly scaleable as the platform can handle far
more volume: a paperless system combines with a low-cost business model to
ensure that Capital Spread’s existing headcount is ample to handle predicted
growth. This is a business with high operational gearing: profit continues to
expand faster than turnover.
Unique forex platform enables strong growth
London Capital’s forex business, Capital Forex was launched in November 2005,
with revenues in 2006 of £1.38m on minimal marketing. Volumes and ticket
sizes are increasing every quarter. The business operates at low-risk: it takes
no principal position and attracts institutional clients with low commissions.
It does so by using an Electronic currency network (ECN) platform to stream
prices and a major bank as clearer and credit provider. Capital Forex should
continue to grow at rates well in excess of industry forecasts of 20% p.a. for
the global foreign exchange market as a whole.
Low-risk business model
London Capital operates a low-risk business model throughout: in
spread-betting it offers no credit, taking a deposit and assigning automatic
stop-loss limits as well as tight value at risk limits on all markets. In forex, the
company takes no principal positions, but acts as a broker, reflecting tight
spreads and liquidity to its clients through its platform. Derivatives broking is
also an agency only business.
Overseas potential
In addition to the growth offered by forex where London is the biggest market,
new EU directives are to open up market spread-betting outside the UK.
London Capital plans to address this through white-label partners. In addition,
in the longer term, the anticipated decoupling of China’s currency from the
US dollar, provided it is accompanied by the relaxing of exchange controls by
China, could add a new dimension to the forex market.
