IG Group Holdings PLC

LSE:IGG

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, welcome to the Q3 full year '20 revenue update conference call. My name is Stuart, and I will be the operator for your call this morning. [Operator Instructions]I will now hand you over to June Felix, Chief Executive Officer; and Paul Mainwaring, Chief Financial Officer. Please go ahead.

[Paul Richard Mainwaring, CFO & Executive Director]

Thank you, and good morning, everybody. Thank you all very much for dialing in. I hope you have had the opportunity to read our short statement this morning, which sets out our revenue for the third quarter of our financial year FY '20, and which also, unusually for us, gives you the details of the -- of our revenue performance in the first few trading days of the fourth quarter. I hope the statement is clear. And in the interests of your time, we will now open the call to questions.

[Operator]

[Operator Instructions] Your first telephone question from today is from Ian White from Autonomous Research.

[Ian White, Research Analyst]

I have 2, please. Firstly, on client growth, it looks like there's been, obviously, significant increase in active clients during the period. Can you just give me a sense as to how many of those are new clients versus how many are kind of clients who have been reactivated, if you like, by the exceptional market volatility? That would be question one, please. And question two, are you able to give us any color around what you are seeing on client account balances? Basically, I'm just wondering if there's been sort of so much trading and so much activity that at some point, some clients consequently just start to diminish and sort of the potential of those accounts is realized. So are you seeing sort of a stable picture there with deposit balances being replenished? Or is there something else to kind of look at there?

[Paul Richard Mainwaring, CFO & Executive Director]

Okay. Well, let's start with that second one on the client money, and our client money balances are very, very similar to where they were at the beginning of all of this period. So we have seen, day after day, clients are depositing money and our balance remains at about GBP 1.5 billion of client cash, which is about the same as it was at the half year. In terms of the new clients, we have seen a continued uptick in the number of new clients that we described also at the half year. I don't have the figure immediately in front of me for the quarter, but we are doing well on our first trades, but it's not -- the proportion of the revenue in the third quarter that's come from new clients is not dissimilar to the proportion of revenue from new clients in any other quarter.

[Operator]

[Operator Instructions] Next question is from Richard Taylor from Barclays.

[Richard Michael Taylor, Analyst]

Just a quick question. Any impact on the business from shorting imbalance in various countries on certain stocks?

[Paul Richard Mainwaring, CFO & Executive Director]

Not that I've seen, Rich, and not that's been alerted to me, no.

[June Yee Felix, CEO & Executive Director]

Richard, I haven't seen it either. But Paul and I have been watching this very carefully, but nothing to date.

[Operator]

[Operator Instructions] We have a follow-up question from the line of Ian White from Autonomous Research.

[Ian White, Research Analyst]

Sorry. Just one further question from me, please. I think I'm right in saying we've still not had an update on potential regulatory intervention in Australia. Do you think it's a reasonable assumption now that, that won't go ahead until this disruption has ended? Has there been any communication from the regulator on that, please?

[June Yee Felix, CEO & Executive Director]

There [ hasn't been anything ] to date in terms of additional communication, and we expect that to be situations that will continue to have other priorities, as you can imagine. Do you want to add anything, Paul?

[Paul Richard Mainwaring, CFO & Executive Director]

No. We haven't heard anything more from the regulator, but we can't comment on when they might or might not put out the final rules.

[Operator]

Next question is from the line of Luke Ahern from Investec.

[Luke Ahern]

Just a quick question, please, everybody, regarding tech resilience and how your investments in technology across the business function in these tough times.

[June Yee Felix, CEO & Executive Director]

Yes. Should I take that one, Paul? Would that be okay?

[Paul Richard Mainwaring, CFO & Executive Director]

Yes, yes.

[June Yee Felix, CEO & Executive Director]

Okay. It's always hard, guys, over the phone. We can't signal to each other who to take what. Yes, the resilience has been very good. What we've been able to do, as you can imagine, handle multiples of our normal volume and all the business continuity testing that we've done consistently has really paid off and -- at this particular point in time. So all is well. We have been able to provide consistent good performance despite the overwhelming flood of activity that opens. As you can imagine with the moves in the market, there's a lot of extraordinary volume. We've also been able, just because of our strength in technology, just to make a comment with the COVID virus, to have all of our teams work at home. There hasn't been any disruption to that. We made investments a number of years ago. So as long as the networks are up, we're actually performing very well. Everyone is working from home at this point almost across the world.

[Operator]

[Operator Instructions] Next question is from the line of Vivek Raja from Shore Capital.

[Vivek Raja, Analyst]

I just had a question about the significant opportunities. Just wondering if you could provide some commentary to what you've seen in Q2. Obviously the performance there has been very much skewed to Japan, so I wonder whether there's been any developments elsewhere.

[Paul Richard Mainwaring, CFO & Executive Director]

Let me take that first, June. Look, the 2 significant opportunities that have performed particularly well in the third quarter, as they had in the first half, are Japan and our Emerging Markets business. So we are really pleased with the continued progress in those areas. As we have always said, this is the portfolio of opportunities and that some will be quicker in the uptake than others. On the RFED in the U.S. and on EMTF and on Institutional, they are continuing to grow their client numbers, and we're really pleased with the progress that they're making in all 3 of those areas. We're either in a new country or a new product or with a new offering. So it's not surprising that the rate of growth there, whilst it's obviously very far from a small basis, is not yet as material as Japan and the Emerging Markets, but we are pleased with their progress.

[Operator]

The next question is from the line of Ben Bathurst from RBC CM.

[Benjamin Edward Bathurst, Research Analyst]

I've got a couple of questions. First one, slightly different. I was just wondering about -- clearly, we're going to a period of increased prevalence of people sort of working from home and giving themselves a bit more of an opportunity to perhaps trade during the day. I wondered if in the first 12 days of March, [ really through to ] last week, if you've identified any difference in terms of the time of trading of your clients, and perhaps that presents an opportunity for more retail clients to use the platform, particularly with respect to the loss of sports activity for potential clients to look at. Second question, just on your commentary around Q4 so far. You sort of stopped short of giving guidance for the quarter. I mean you referenced regulatory reasons potentially. I just wondered, is that a concern about markets potentially being closed due to the uncertainty presented by the COVID-19 situation? Or is there anything else you'd -- or any other concern you draw particular attention to that's leading you to stop short of giving guidance for Q4?

[Paul Richard Mainwaring, CFO & Executive Director]

Well, let's start with that one. Look, the reason we haven't given guidance for Q4 is because we are in a situation where we simply do not know what will happen in terms of whether this current level of volatility will persist, whether the clients will continue to behave as they're behaving. And whatever else might happen, reflecting either the actions of government or the actions of regulators or any other body around the world in what are truly unprecedented and extraordinary times. And we had a long discussion at the Board yesterday on where we were and the progress we were making and the situation that the world finds itself in, and we felt it was appropriate to simply indicate that there's an awful lot of things that are going to happen over the next couple of months that we simply cannot even begin to predict or think about. So to give guidance or a forecast for the full year in these circumstances, we felt would be foolish. So we decided the best thing to do was to tell you exactly where we've performed in the first 12 trading days of 61. And remember, we run the weekend days into the Monday, so there were 5 trading days a week bar bank holiday. But that, we felt, was the best we could do. On the second question about the sports betting. Look, I -- we have discussed many times the extent to which there is a crossover between the sports gambling community and the financial derivatives speculating that community. And of course there must be some, it isn't big. And we were just discussing yesterday whether we felt there would be any benefit from people being enabled to bet on live sports, and we decided that we really didn't think that was going to be the case. And the bookmakers are incredibly inventive. And there were a few of us yesterday watching the virtual football on Paddy Power. They will come up. And an awful lot of their income, of course, comes from the casino touch, their gaming stuff anyway, doesn't it as well as the sport. So we don't think we're going to benefit from that. In terms of the timing of clients' trade, not that we've noticed, the volume has been so high so consistently throughout the day. Obviously, at market open, we're seeing a huge number of clients logging into trade at market open for both Europe and for the U.S. But we haven't -- I'm not aware that there's any pattern of trading that is different. I mean our clients trade both on desktop and on mobile, so they can currently trade wherever they are anyway. So we haven't seen any change on that.

[June Yee Felix, CEO & Executive Director]

Yes.

[Operator]

Next question is from Paul McGinnis from Shore Capital.

[Paul McGinnis, Research Analyst]

Sorry, I joined the call slightly late. So apologies if these questions have already been covered off. It was around -- because the -- what you've seen recently is quite a high strength in the number of customers as opposed to just revenue per customer. Just wondering, is it too soon to be able to give any kind of judgment on the quality of the new customers joining? For example, have some of them come on, had a few gos and then sort of realize they didn't know what they were doing and then churned off again. Is that part of the caution as well against wanting to guide too much about what's going to happen in Q4?

[Paul Richard Mainwaring, CFO & Executive Director]

That's a really good question. And we have seen an uptick in the number of first trades that have both come through, and it is pretty early to be able to ascertain the average quality as to whether it is significantly different from what we've seen before. I mean, as you know, because of the appropriateness testing that we apply, we are -- we don't expect to see the same type of client numbers bubble that came just prior to Brexit referendum and then a drop-off thereafter. But we are being cautious here. I mean, genuinely, we are in unprecedented times. So we're delighted to see that the client growth continues and that clients continue to wish to use the service. And we will, obviously, keep an eye on ensuring that we are taking on board people for whom the budget is appropriate. And we hope, therefore, that they will continue to behave in the future as they have in the past. But at the moment, I can't assure you of that, other than we haven't in any way changed the quality criteria for onboarding.

[Operator]

This concludes our question-and-answer session, and I would like to turn the conference back over to June and Paul for any closing comments. Please go ahead.

[Paul Richard Mainwaring, CFO & Executive Director]

Look, thank you, guys, for participating in this. I know it's difficult times for everybody. Thank you for your interest, and we wish you all the very best and hope to speak to you all soon.

[June Yee Felix, CEO & Executive Director]

Thank you for dialing in. Appreciate your support.

[Operator]

Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect. Goodbye.