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AIM spread bet firm has both turnaround and takeover potential With new management in place and legacy issues accounted for, London Capital Group is now positioned for progress. In 2008, financial spread bet firm London Capital Group declared a net profit of £7.6m and a dividend of 11p. In 2012, problems set in and the firm fell to an operating loss. The most recent trading statement confirmed expectations of an adjusted pre-tax profit for 2013 of £2.4m.

white label customers include London Capital Group (LCG), is the AIM-quoted business behind the Capital Spreads and Intertrader brands. LCG uses these brands to offer financial spread bet and Contract For Difference services to the public. In addition, LCG uses its expertise and technology to offer ‘white label’ services to other betting providers. Here, a specialist stockbroker or sports betting provider will offer its clients a spread bet/CFD service under their own brand. LCG then delivers the services through all of its own technology, administration and regulatory capability.

2013 was a wretched year One example is BetVictor Financials, an LCG provision to the

Victor Chandler betting operation. Other white label customers include European betting behemoth Bwin. party and Saxo Bank. Under a typical white label agreement, a customer like Victor Chandler will receive a fee from LCG each time a new client is recruited. The end user would then legally become a client of LCG. As the relationship continues, LCG would continue to pay BetVictor fees depending on the level of client activity. 2013 was a wretched year for London Capital Group. Complaints to the Financial Ombudsman Service (FOS) resulted in £1.2m of compensation being paid to customers of an LCG managed FX fund. This was followed by the departure of founder and CEO Simon Denham. The new CEO of the company then resigned after little more than six months at the helm, citing personal reasons.

London Capital Group would be a handy acquisition Between all of this, shares in LCG fell in September 2013 as it was announced that it would be losing one of its largest white label customers. TradeFair, the financials offering from BetFair, had previously contributed around 5% of LCG’s gross profits. The arrangement ended at the beginning of the year. CEO since July is Kevin Ashby, the former CEO of AIM-quoted Patsystems. Mr Ashby was joined in

December by David Sparks, a former regional FD for Sportingbet prior to its takeover by William Hill/GVC. The most recent trading statement from LCG prepared shareholders for a series of considerable write-downs and exceptional expenses. FOS claims, legal settlements, restructuring costs and IT changes were all flagged. Before running intro trouble, the company was a successful, profitable dividend payer. In an industry dominated by one large competitor (IG Markets), a cleaned-up London Capital Group would be a handy acquisition for an ambitious second-tier player. However, with the final FOS bill still undecided, such a takeover is unlikely to arrive imminently. That leaves Mr Ashby and his team with the challenge of returning LCG to being a highmargin spread bet provider and white label operation. London Capital Group Holdings (LON:LCG) FOR Clear upside if management can get it right Profitable on an underlying basis AGAINST Market now more competitive No obvious edge on competition Market cap Bid:offer

£19m 32p:34p

P/E (forecast)

no forecasts available

Yield (forecast)

no forecasts available

52week low:high



April 2014  
April 2014  

Featuring ISG, London Capital Group, Proxama, Richoux and RWS Holdings.