Summary

London Capital produced another set of robust results. The out-turn contained
no surprises after the guidance given with the trading statement in July. But that
does not diminish them as a tribute to the effectiveness and discipline of the LCG
model. Revenues rose by over 50%, net cash almost doubled and bad debts were
de minimis. The combination allowed an aggressive but comfortably affordable
doubling of the interim dividend. We expect further growth from this inherently
scalable business with the development of CFDs as a possible gateway to the
Orient. Estimates and valuation maintained.

Key points:

• Effect on forecasts.
  The interim results were broadly speaking in line with our model although overall
  COGS was at almost 21% marginally higher than the 18.5% we have estimated for
  the full year. The difference amounts to some £0.6m at the gross profit line in the
  current full year. Given London
  Capital’s track record we are content for now to leave our COGS and thus overall
  estimates unchanged.

• Institutional broking. Capital Derivatives (less than 6% of GGR) saw modest
  growth but that was achieved despite a slowdown in the second quarter. Trading
  volumes rose by almost 19% to 1.6m lots.

• Forex. Capital Forex (15% of group gross revenues (GGR)) added 120 new
  institutional clients during the first half and saw client funds rise to £22.4m
  (from £18.4m in 1h ’07).

• Spread betting. Capital Spreads added over 6,700 new clients during the period
  bringing the total number of “live” accounts to 25,853 (from 13,180). Client
  acquisition costs were largely unchanged at around £95 per live client. The average
  number of daily trades (per 100 live accounts) rose to 64 (from 53) although the
  average value per trade dropped to £4.3 (from £6.0) and the proportion of “active”
  clients dropped to 37.4% from 43.9%.

• Overall. Unsurprisingly it is the spread betting business, Capital Spreads, that is making
  all of the running – both in absolute size and in growth rates. Forex effectively
  “flatlined” in the first half but that reflected the removal of two major clients.

The full report can be accessed at:
http://reports.objectivecapital.com/ocreports/OC-UKHNW-full-objective-londoncapital-12august08.pdf

For all our previous comments on this company visit:
http://www.objectivecapital.co.uk/LCG.L.asp

Last 5 posts by Gabriel Didham, CFA

• Balkan Resources (Private) - exploring the Perlati copper deposit in Albania - October 9th, 2009
• Balkan Resources (Private) - exploring the Perlati copper deposit in Albania - October 9th, 2009
• Balkan Resources (Private) - exploring the Perlati copper deposit in Albania - October 9th, 2009
• Sofame Technologies (SDW.V) - more detail on funding plans - September 11th, 2009
• Scancell Holdings (SCLP.PLUS) - differentiated technology and a focused plan offer ingredients for success - September 7th, 2009