Capital Spreads grew faster than expected in 2007 and continues to do so
in 2008, with growth accelerating due to the white label partnerships signed
last year. Capital Spreads had a robust first quarter and is performing ahead of
management expectations.
Capital Forex grew its revenues almost threefold in 2007 and client funds on
deposit grew 158%. While the average ticket size has fallen back since 2007
Q1, the number of clients and the number of trades has continued to grow
each quarter. The AGM statement confirms continued robust growth in the first
quarter of 2008.
With a lean, low cost business model and modest capital requirements London
Capital continues to have a very high rate of cash conversion. Cash on hand
increased nearly threefold in 2007.
London Capital increased its dividend for 2007 to a total of 6.5p per share
from 1.7p in 2006. Given the company’s modest capital requirements, its
low risk business model and its preferred route of growing its businesses
organically, we expect the dividend pay-out ratio to reflect the earnings,
cashflow and potential of the group.
Upwards revision of our forecasts. The faster than expected growth of the
business, its cash generation and its continued robust growth (see AGM
statement 23rd April) have resulted in an upwards revision of our forecasts and
in our valuation. Our core scenario valuation has increased from 301p to 458p
per share.
