Improved Market Conditions Bolster Gain Capital's Q1 Performance

Listed US broker GAIN Capital has reported its Q1 2013 figures today. Overall the group performed in the green with

gaincapitalListed US broker GAIN Capital has reported its Q1 2013 figures today. Overall the group performed in the green with the focal point being a 50% increase in revenue. The firm reported net income of $4.3 million, or $0.11 per diluted share, for the first quarter of 2013, on net revenue of $49.8 million. Gain Capital has been one of the most talked about brokers during the last quarter as arch rival FXCM put a bid to acquire the firm. Gain responded with even more might as the New Jersey headquartered broker announced its acquisition of GFT. Consequently FXCM withdrew its bid for Gain Capital.

“I am pleased to report strong results for the first quarter, with a 50% increase in net revenue and EBITDA rising to $7.5 million from $1.3 million, as all of our core business areas posted significant growth amid improved market conditions,” said Glenn Stevens, CEO of GAIN Capital, in the company’s statement. “At the same time, we accelerated the diversification of our net revenue, with commission-based businesses representing 22% of net revenue in the first quarter, compared with 11% in the first quarter of 2012.”

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“We also reported positive trends in key operating metrics, with client assets rising 40% to a record $456.9 million and funded accounts growing 36% to 100,020, thanks to a mix of acquisitions and organic growth. This was accomplished while managing costs in order to achieve significant operating leverage.”, Mr. Stevens added.

“Our positive momentum continued in April, which saw retail and institutional volumes increase 26% and 103% on a year-over-year basis, while futures DARTs (Daily Average Revenue Trends) rose 10% from March 2013. With superior product offerings in our retail, institutional and futures businesses, GAIN has been able to capitalize on improved market conditions across its expanding global operations,” Mr. Stevens concluded in the statement.

Key Points (compared to Q1 2012):

  • Net revenue increases 50% to $49.8 million from $33.2 million
  • Net income of $4.3 million, compared with net loss of $1.3 million
  • EBITDA* rises to $7.5 million from $1.3 million
  • April metrics show continued positive momentum
  • Signs transformational acquisition of Global Futures & Forex (GFT)

On April 25, 2013, GAIN Capital announced that it had signed a definitive agreement to acquire Global Futures & Forex, LTD (GFT), a global provider of retail forex and derivatives trading.

“GAIN’s pending acquisition of GFT is a transformational transaction, significantly increasing our scale and capacity to generate both revenue and EBITDA, while adding a range of complementary businesses. Following our acquisition of GFT’s U.S. assets in December, we are well prepared to swiftly integrate the two businesses following the close of the transaction, capitalizing on synergies while ensuring continuity for clients,” Mr. Stevens said.

Glenn Stevens, CEO GAIN Capital
Glenn Stevens, CEO GAIN Capital

Consolidated Results

Revenue from the trading business was $35.3 million, compared with $29.5 million a year earlier, while revenue from the commission-based business was $10.9 million, compared with $3.7 million in the first quarter of 2012.

Growth in expenses was significantly lower than growth in revenue, with expenses in the first quarter of 2013 increasing 27.1% from the prior year quarter. This increase was largely driven by increases in variable costs, including trading expense, as well as the inclusion of expenses related to OEC, which was acquired in August 2012. In addition, GAIN was able to achieve revenue growth even as marketing expenses were reduced 23.9%, to $5.4 million.

EBITDA for the first quarter rose to $7.5 million, from $1.3 million a year earlier. EBITDA margin was 15% in the first quarter of 2013, compared with 4% a year earlier.

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Net income for the quarter was $4.3 million, or $0.11 per diluted share, compared with a net loss of $1.3 million, or $0.04 per diluted share, a year earlier.

 

GFT Acquisition

On April 25, 2013, GAIN Capital announced that it had signed a definitive agreement to acquire Global Futures & Forex, LTD (GFT), a global provider of retail forex and derivatives trading. The purchase price is approximately $107.8 million which, including approximately $80 million of GFT cash at closing, results in a net purchase price of $27.8 million.

The purchase price will be paid with $40 million in cash, a five-year $40 million seller note and the issuance of approximately 4.9 million shares of GAIN common stock. The transaction is expected to close in the third quarter and to be accretive in the first full quarter after closing; first year operating synergies are estimated at $35-$45 million.

Preliminary April Metrics

GAIN’s April retail trading volume was $145.8 billion, an increase of 26% from April 2012 and 4% from March 2013.

Institutional volume in April was $315.8 billion, an increase of 103% from April 2012 and 17% from March 2013.

OEC’s DARTs for April were 14,773, up 10% from March 2013.

The metrics set forth above are preliminary and are subject to change. Full April metrics will be released next week. Operating metrics for each subsequent month will be released in the middle of the following month.

Dividend

The Board of Directors approved a quarterly dividend of $0.05 per share, to be paid on June 21, 2013 to shareholders of record as of June 12, 2013. Gain Capital’s share price is trading at 4.75 in USA. Since the firm went public the stock has suffered and is trading 43% lower then its initial offering price.

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