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IG Group warns Australia will be the next to introduce leverage limits

Regulators around the world have been cracking down on the spreadbetting industry in a bid to prevent the average punter from losing lots of money

Should Australia bring in leverage limits, analysts expect to lower their estimates by 2-4%

IG Group Holdings PLC (LON:IGG) expects Australian regulators to bring in legislation that will limit losses among retail clients betting through its trading platform.

FTSE 250-listed IG said the Australian Securities and Investments Commission will likely look to impose leverage limits on retail clients, who are generally more prone to suffering big losses.

READ: IG Makes long-term dividend commitment as trading picks up

Given that Australia accounts for around 15% of annual revenues, City analysts expect any new regulations would put a small dent in their forecasts, possibly up to 4%.

IG bosses sought to play down the potential impact, pointing out that leverage restrictions are nothing new and that over three-quarters of its revenue come from markets where regulators have moved to protect retail clients.

European rule changes hit annual profits

But similar limits recently brought in across the UK and Europe put a huge dent in IG’s revenue and profits last year.

Net trading revenue for the year ended 31 May dropped by 16% to £476.9mln (2018: £569.0mln), while operating profit plunged by a third to £192.9mln (2018: £281.1mln).

Both of those numbers had been well-flagged in a trading update back in May.

The full-year dividend was unchanged at 43.2p, and the firm has vowed to maintain that pay-out until earnings allow it to resume progressive dividends.

The company expects to return to revenue growth in the current year, although it is also forecasting a £30mln jump in costs.

‘Navigated regulatory upheaval’

“The company has made good strategic and operational progress during FY19, taking action to ensure that the business successfully navigated the impact of regulatory change,” said chief executive June Felix.

“We have developed our strategy to position the business so that it will continue to deliver for our clients, our shareholders and our other stakeholders under a more restrictive regulatory environment in the UK and EU.

“I am excited by the opportunities we have identified, and I am confident that the company will return to revenue growth in FY20.”

Shares were down 1% to 574.2p in early deals on Tuesday.

Quick facts: IG Group

Price: 684 GBX

Market: LSE
Market Cap: £25.27 m

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