Market volatility to boost IG Group revenue in Q4

Spread betting and contracts for difference (CFD) provider IG Group says it has benefitted from “exceptionally high levels” of financial market volatility caused by novel coronavirus (Covid-19), which has resulted in significant revenue growth in Q4 to date.

IG Group noted that revenue for the first 36 trading days of its fourth quarter, which ends 31 May, was estimated to be around £173m (€198m/$214m).

This marks a 23.7% increase on revenue of £139.8m for the full third quarter, to 29 February, and more than half the £249.9m generated in the six months to 30 November 2019.

“Revenue in any period is impacted by the level of financial market volatility and the extent to which clients identify opportunities to trade,” IG Group explained.

“Financial market volatility has been sustained at exceptionally high levels since the last week of February 2020, and the group's clients have responded to the opportunities such market conditions present, and client trading volumes have been exceptionally high.”

For the 36-day period, over 22,500 new over-the-counter leveraged clients had begun trading with IG Group, compared to 36,000 for the first three quarters of its 2020 fiscal year.

Operating expenses for the period, excluding variable remuneration such as commission, now expected to increase by around £40m to £300m for FY20. This represents a hike of around £10m on its original projections, and reflects the growth in its active client base and subsequent high level of activity in Q4, and includes an increased provision for bad and doubtful debts.

With a proportion of employee remuneration depended on annual financial and non-financial targets being hit, the high levels of Q4 revenue will result in the sum paid to staff rising from £25m in FY19 to £42m.

“During such a prolonged period of volatility, we've seen high volumes of clients choosing to trade markets with IG, reflecting our business resilience, our robust systems and our commitment to delivering the best possible trading experience,” IG Group chief executive June Felix commented.

With market volatility resulting from Covid-19 delivering higher revenue for the business, IG Group has committed £5m from its FY20 pre-tax profit to its IG Brighter Future Fund. The fund helps provide educational opportunities for underprivileged children in communities where it operates around the world, many of whom had been disproportionately affected by the pandemic, it noted.

Of this £5m, £2m will be used to strengthen its partnership with UK-based education charity Teach First, with the remaining £3m going to a range of global partners.

IG is also supporting employee initiatives to help combat the virus, including a matched giving scheme in the UK launched in March to support the National Emergencies Trust Coronavirus Appeal. This has already raised £70,000.

“We are encouraged with the resilience and performance of our employees in such challenging times for everyone,” Felix said. “The IG Brighter Future Fund builds on our culture of supporting the local communities in which we operate, helping disadvantaged young people gain access to improved educational opportunities.

“We are thrilled to be able to build on our partnership with Teach First and forge ties with other new international partners to support the long-term education needs of children living through such an unsettling period.”

IG Group is scheduled to provide a pre-close trading update on its FY20 performance on 4 June, though it said it was difficult to predict whether the early strong performance in Q4 would continue to the quarter’s end.

“The recent sustained level of financial market volatility and revenue is unprecedented, and it is not possible to determine how long it will persist or how clients will continue to respond,” it explained. “It therefore remains difficult to predict accurately the level of revenue in the final quarter of this financial year.”

However, it noted that its financial position remains strong, and the board expects to maintain a 43.2 pence per share annual dividend.