GAIN Capital’s Shares Surge after Jefferies Forecasts $150 RPM

FXCM’s accounts come into focus as a potential revenue driver.

Shares of globally focused retail forex and CFDs brokerage GAIN Capital (NYSE:GCAP) closed the trading day higher by over 5 percent. The spike was driven by an investor note issued by Jefferies. The subsidiary of Leucadia National, which is the biggest creditor of FXCM, issued an upbeat outlook for the brokerage company.

The price target for shares of GAIN Capital (NYSE:GCAP) was increased by $3, from $7 to $10 per share. Jefferies is rating the broker’s stock as a buy at its daily closing price for Tuesday, which was $7.71.

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“Opportunistic Deal Highlights Benefits of Scale”

Jefferies classifies the acquisition of FXCM’s US accounts as opportunistic, but as we all know such opportunities are usually the most profitable. The note is distributed just a day before the company’s earnings for the fourth quarter which are set to be released on Thursday.

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Jeffries hiked its EPS estimate for GAIN Capital from $0.08 to $0.45. The change is reflecting “a combination of heightened activity and improving revenue capture”.

“The recent acquisition of FXCM’s U.S. retail business is immediately accretive and builds upon the company’s leading market share,” the analysts from Jefferies highlight in their note.

Increasing Retail Revenue Per Million Metrics and FXCM Deal

According to Jefferies, GAIN Capital is likely to benefit from increasing retail revenue per million and higher intraday volatility coupled with generally balanced ‘2-way’ trading. The number which the analysts from the investment bank are forecasting reaches $150 per million, which is higher by about 50 percent from the current average of $104 per million.

Jefferies’ analysts state that the acquisition of FXCM’s US retail accounts which total 47,000 adds about 28,500 which are actively trading. The net result in trading volumes terms is likely to be higher by about 15-20 percent, which is between $9-11 billion. The US business of GAIN Capital currently nets about 15 percent of total retail trading.

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