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London Capital (LCG.L) - interim results
LCG.L
Comment by Objective Capital , Aug 10, 2007
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London Capital yesterday released detailed figures for the first half of 2007. Highlights were:
- Turnover £8.13m (£3.53m) +131%
- Profit before tax and share option reserve £3.9m (£1.65) + 136%
- Average spread betting trades per day 7,030 (4,307) +63%
- Spread betting client acquisitions 4,530 (1,981) +129%
- FX average monthly turnover US$22.9bn (US$2.25bn) +918%
- Adjusted EPS 7.1p (3.1p) +129%
- Interim dividend 1.25p to be paid 7 September 2007
Objective's view:
LCG had already prepared the market for a strong set of numbers in its trading statement on 3 July, and these numbers more than justify the upbeat tone. In the first six months of 2007 LCG’s turnover is almost at the level reached for the whole of 2006 while pre tax profit has already exceeded the total for 2006.
Key factors for spread betting are the number of clients and market volatility and while LCG has no control over the latter it has made a fine job of acquiring new clients. The number of new clients added in the first six months more than doubled and we believe LCG is adding new clients at much the same rate as the much bigger market leader IG Group. The number of live betting clients rose 96% in the period to £13,180 and the amount of customer cash on deposit increased from £4.79m to £14.5m. Encouragingly these increases have not come at the expense of client acquisition costs which actually fell slightly during the period.
Capital Forex only started at the end of 2005 so it was expected to grow exponentially, but as a commission based business it depends on volume and the continued increase in average monthly trading volumes to US$22.9bn in the first six months is encouraging.
We recently upgraded our forecasts for LCG and believe theses numbers more than justify the upgrade, the key indicators being if anything a little better than we had estimated. That said we are sticking with our forecasts for the time being. Market conditions, especially volatility have been very favourable for spread betting so far this year, including July and August but there is no guarantee they will remain so throughout the rest of the year. Furthermore, we expect LCG to incur high depreciation costs in the second half following recent capital expenditure on system enhancements.
Customer cash on deposit is now over £33m and the group is actively managing these funds to ensure it earns the best possible deposit rates and ensures their security. Interest on these funds now covers over 60% of the group overhead expense and their continued growth will clearly lead to improved profitability. If market conditions do remain as favourable in the second half as in the first half, we believe there could be scope for further positive earnings surprises.
