IG Group, still looking for volatility

A while back I posted that spread betting provider IG Group seemed to be a company that needed volatile markets to help it go forward (IG Group, a company that needs volatility), today we see more evidence to back this up.

Revenue in the period was £169m, 14% lower than the prior year's. Sales for the second quarter, at £87.5m, were 7% higher than in the first quarter although still 9% behind the prior year. 

The group said the performance reflected the particularly tough comparators which the group faced due to extreme levels of volatility in financial markets in 2011 and the continuing subdued markets which were impacting client activity currently. 

During the period the business did respond well to short spells of heightened market activity and continued to grow market share in its biggest markets. 

http://www.digitallook.com/news/20557816/First_half_revenue_falls_at_IG_Group_as_volatility_remains_muted.html?username=&ac=

The chances are that if and when the markets become volatile again, IG and other spread betting companies will probably do well, but what do they offer if it doesn't happen? In the case of IG a decent enough dividend, but they need clients to want to trade and subdued markets seem to dampen that. The unfortunate thing for spread bettors however, is that while they may well crave volatility most of them are probably going to lose if it happens.

IG Group, a company that needs volatility?

IG Group has become one of the most successful spread betting companies in the UK, a market leader that sits in the FTSE250.  It hasn't got there by being an overvalued or ramped up growth company either, it has an undemanding P/E of 11.4 and offers a dividend yield of around 5.2%.  The share price has recently been in a slump, finding support at around the 420p level on the daily chart, but struggling once it gets to around the 460/70p level.  The 52 week high is just over the 500p level, but unlike other FTSE250 stocks that often steam away once past a resistance level, IG Group tends to fall off again, no doubt frustrating long term investors in the company.

There is something interesting about the company that is worth noting for anyone interested in buying it, especially long term buy and hold investors.  It seems to do better when there is volatility in the markets that its clients trade, when the markets are quiet, performance is affected.  This now seems to be a common theme with IG Group, which poses the question what will happen to the shares if the markets ever get back to some sort of normality?  A normality where there isn't the type of extreme volatility in market movements that have become the norm since 2007/8.  It would appear that spread betting traders like this volatility, even though most of them probably tend to lose because of it.