Reason for comment

London Capital Group Holdings (LCG) today published a trading update covering the first half that ended on 30 June 2008. The group expects pre-tax profit to be “significantly ahead of original management expectations and approximately 50% ahead of the same period last year”.

It reports increased volumes and revenues across the group and notes that “current market conditions continue to favour the business model”. The recently acquired FuturesBetting.com, based in Gibraltar, is expected to go live later this month.

The Board has announced its intention to pay an interim dividend of 2.5p, a 100% increase on the interim dividend last year.

Interim results are scheduled to be announced on 7 August 2008.

Objective’s view:

Altogether we view the trading statement as supportive of our core and optimistic valuations of 458p and 600p respectively

Pre-tax profit at the interim stage last year was £3.9m. The statement today that management expects pre-tax profit this time to be approximately 50% ahead implies a figure of around £6m. Given limited seasonality, that number would be in-line with our recently published, and increased, forecast of £12.6m for the full year (against £8.6m for 2007). Note that our forecasts assumed no contribution from the FuturesBetting.com in Gibraltar and we will watch its launch later this month and subsequent trading with interest.

Trading volumes at Capital Forex “remain robust” which, in the context of LCG, sounds almost conservative.

The bottom may have dropped out of the M&S underwear market, as a result of the credit crunch, but demand continues to grow for LCG’s spread-betting offering, and from its other services. Capital Spreads is, as expected, growing both organically under its own brand and through white label partnerships more of which are in negotiation. In the year-ended December 2007 it contributed over 70% of net Group revenue (after brokerage and hedging costs).

The trading statement comes on the same day, and in marked contrast to, that from Marks and Spencer which shocked the market with the extent of doom it has experienced on the High Street. What is particularly telling in the LCG statement, beyond the indications of the strength of the performance, is the reference to the “current market conditions (as continuing) to favour the (LCG) business model”.

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

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