Spread Betting Firm IG Index Sets Float Price
April 2005
There is no doubt about it, financial spread betting firm IG Index is the market leader as well as the best run spread betting firm. After a few years in private hands its re-floating on April 28th with an indicative guidance price of 112p-139p. This will value the firm at over £400 million.
IG Index has a lot going for it, the management is superb alongside employing the tightest risk management of all its competitors. For example, it's rumoured to be company policy that the firm will not allow its clients to build up a position of more than 1% of any publicly traded company. Contrast this to a rival who allowed their clients to stake a mega long position in Elan Corp. When that stock broke sharply (down around 70% in a matter of hours) many clients couldn't pay and the firm took a nasty hit.
IG Index is also the leader in the ever popular and ever increasing Binary Bet market. The firm has left rivals in its dust as it spent many millions developing the sophisticated and powerful hardware/sofware needed to automatically run the service. Expect Binary Bets to be a real driver of profits over the next few years.
Short Term Negative - Long Term Positive
However, margins within the spread betting industry and being cut all the time and this isn't good news for anyone apart from the clients! General chatter in the market is that the next 12-18 months are going to be the most challenging yet within the industry. We are therefore expecting IG's shares to share the general concern in the market and possibly get dragged down as the sector and competition starts to cannibalise itself.
So although we love the company and expect good things from the industry in general over the longer term, we're only going to be buyers on weakness. The short term orientated media will likely be a real factor in dragging the sector down as they gleefully report any bad news. But this is what long term bulls of the sector want.
To sum up, the financial spread betting industry needs a shakeout. This will likely drag the whole sector down but any weakness in the share price of IG Index could be a real advantage to those investors with a multi-year bullish outlook.
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