GAIN Capital Swings to Q2 Loss Due to Falling Equity Index Revenue Capture

GAIN Capital has reported a loss of $8.8 million due to “unusually adverse trading conditions across indices” during the Q2

GAIN Capital has reported its Q2 2015 financial figures. For the quarter, revenues were reported at $111.6 million, with the bottom line showing a loss of $8.8 million or -$0.23 a share. The loss compares to Net Income of $8.3 million or $0.18 a share in Q1. The figures compared to analyst expectations of $107.5 million in revenues, and $0.08 earnings per share.

Due to the boost of the quarter including business results from City Index, during which GAIN Capital finalized its purchase earlier in the year, Q2 revenues grew 60% compared to the same period in 2014, and 20.1% higher than Q1.

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After warning in July that Q2 revenue capture would come in at the broker’s lower historical range, the loss was expected, and had been factored into GAIN Capital’s shares as the stock price had fallen 30% since its June highs. In their prepared statement, CEO Glenn Stevens cited that the falling revenue capture was due to “unusually adverse trading conditions across indices, which resulted in approximately $20 million lower than normal net revenue for the quarter.” However, Stevens cited that retail forex revenue capture was solid, thus showing a rebound from an area of weakness in Q1.

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Included in today’s announcement, other than revenue capture, the big question was the initial performance of City Index and early results of the acquisition. On this, GAIN Capital stated that they continue to believe that they will meet their cost synergy targets of $45-$55 million. Stevens also added that the firm is making progress in reducing their core fixed expenses, “which decreased 4% and 7% from the first quarter 2015 and the second quarter 2014, respectively.”

Also of note, the broker cited that the acquisition of City Index is improving their product mix. As a result, the forex portion of overall retail volumes dropped to 63% from 75% a year ago. The remaining 37% of volumes was composed of equities, indices, commodities and other non-forex products.

In relation to their institutional business, revenues declined to $8.4 million from $8.5 million in the same period of 2014. The Q2 revenues were 15.2% below Q1’s figures.

Regarding today’s financial report, a question we had was whether GAIN Capital would provide any statements of performance for July and the first week of August. While the broker didn’t provide an update, their pinning of the poor revenue capture on only equity indexes could be understood as being a temporary problem, however, one that should be addressed in their upcoming conference call which Finance Magnates will be covering. A possible culprit may have been their Hong Kong 40 CFD which saw increased volatility due to moves in the Chinese stock market.

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