Small Cap Value Report (Mon 18 Dec) - IGG, CMCX, FTC, Sumo Group, BOOM

Sunday, Dec 17 2017 by

Good morning! 

Thanks for your suggestions, I will work my way through them.



(Please note that I own shares in IGG)

IG Group (LON:IGG)

  • Share price: 671.25p (-8%)
  • No. of shares: 367 million
  • Market cap: £2,464 million

Response to FCA and ESMA announcements

It was a slightly unpleasant start to the day for me, as an unsettling RNS was released by one of my holdings, IG Group (LON:IGG).

Many of you will probably be clients of IG, perhaps for many years. It is the biggest spread betting operator in the UK.

The market cap is a lot bigger than we normally permit here, but I'm happy to make an exception.

IG's smaller rival, CMC Markets (LON:CMCX), also made an announcement. Its shares are down 12% for a market cap of £424 million. So I will discuss both in what follows.

Regulatory attack

It has been known for some time that new rules may be enforced on retail traders of leveraged products in Europe and the UK.

The FCA published a consultation paper a year ago, receiving an avalanche of feedback in response, which undoubtedly slowed its progress.

The German and French regulators have also been active. And the Paris-based European Securities and Markets Authority (ESMA) issued a statement on Friday (see here), which sounds ominous.

ESMA has been concerned about the provision of speculative products such as CFDs, including rolling spot forex, and binary options to retail clients for a considerable period of time and has conducted ongoing monitoring and supervisory convergence work in this area. Some competent authorities have also adopted national measures to limit the provision of these products to retail clients.
Notwithstanding these actions, ESMA remains concerned that the risks to investor protection are not sufficiently controlled or reduced.

The proposals are to ban binary options for retail clients, impose leverage limits of between 30:1 and 5:1 on CFDs, prevent bonus offers to incentivise trading, a guaranteed limit on client losses, etc.

The really major proposal is the leverage limit. This is because it's fundamental to the product offering in forex, indexes, etc., that you can trade with a nice big leverage ratio of 100x, for example.



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All my own views. I am not regulated by the FSA. No advice.

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IG Group Holdings plc is a United Kingdom-based company, which is engaged in online trading. The Company provides contracts for difference (CFDs) in over 17 countries globally. The Company's segments include UK, Australia, Europe and Rest of World. The UK segment consists of its operations in the United Kingdom and Ireland, and derives its revenue from financial spread bets, CFDs, binary options and execution only stockbroking. The Australian segment derives its revenue from CFDs and binary options. The Europe segment consists of its operations in France, Germany, Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden and Switzerland, and derives its revenue from CFDs, binary options and execution only stockbroking. The Rest of World segment consists of its operations in Japan, South Africa, Singapore, the United States, the United Arab Emirates and Dubai, and derives revenue from the operation of a regulated futures and options exchange, as well as CFDs and binary options. more »

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CMC Markets plc is a holding company. The Company is a provider of online and mobile trading servicing both retail and institutional clients. The Company enables clients to trade over 10,000 financial instruments, including indices, commodities, foreign exchange (FX) and equities through its trading platform. It operates through three segments: UK and Ireland (UK & IE), Europe, and Australia, New Zealand and Singapore (APAC) and Canada. Clients can trade the markets via contracts for difference (CFDs), financial spread bets (UK and Ireland segment only) and binaries. With the Company's spread bet, a client bets a specific stake size per point movement of a product, rather than trading a specific number of shares or units. The Company offers four types of binaries: Ladder, One Touch, Up/Down and Range. It also offers Australian wholesale and retail clients the ability to buy and sell Australian Securities Exchange (ASX) and SSX (formerly APX) listed products and managed funds. more »

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Filtronic plc is engaged in the design and manufacture of a range of customized radio frequency (RF), microwave and millimeter-wave components and subsystems. The Company's segments include Filtronic Broadband, Filtronic Wireless and Central Services. The Filtronic Broadband segment is engaged in the design and manufacture of transceiver modules and filters for backhaul microwave linking of base stations used in wireless telecommunications networks. The Filtronic Wireless is engaged in the design of radio frequency conditioning product for base stations used in wireless telecommunication networks. The Central Services segment provides support to the trading businesses. Its products are used in mobile wireless communication equipment and point-to-point communication systems, among others. Its product range includes transceiver modules and multi-chip, surface mountable transceiver packages at microwave, 71 gigahertz (GHz) to 86 GHz (E-band) and 57 GHz to 66 GHz (V-band) frequencies. more »

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  Is LON:IGG fundamentally strong or weak? Find out More »

65 Comments on this Article show/hide all

ricky65 18th Dec '17 46 of 65

Unless you're using a guaranteed stop loss, spreadbetting with leverage is like driving a car with no brakes - eventually you will crash. There's always the risk of a black swan event such as a large gap down on a stock. Earlier this year I was holding IMG in my ISA when it gapped down ~70%. A nasty loss but I recovered from it. If it was a leveraged spread bet, I would have been financially ruined.

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ken lowes 18th Dec '17 47 of 65

I would try contacting the company by phone if you are interested in these shares. I opened an account at the weekend but needed to call then today. tried and tried and tried no matter which button i pressed no one was answering and I was on the line for fifteen minutes each time. Imagine you have a broker but you need to talk to them as a matter of urgency, it happens, and you can't get anyone to answer the phone. This is the sort of thing that can destroy companies very quickly.

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Ramridge 18th Dec '17 48 of 65

Hi Graham - SUMO Group clearly looks interesting. However we don't yet have an admission document and no financial statements to look at. First dealing date is 21 December and they say they will published the admission document on their website by then.

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rhomboid1 18th Dec '17 49 of 65

In reply to post #256073

Ken, which company does your post refer to ?

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herbie47 18th Dec '17 50 of 65

In reply to post #256063

Well not if you are short. That's why some people take them out in case of a market correction, crash or black swan event.

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Tanglands 18th Dec '17 51 of 65

Long plus500 what I find amusing, ironic and frankly perthetic is that regulators will jump to protect (as they see it) the stupid, but not innocent, with regard to leverage products, BUT when it comes to trying to regulate Bitcoin or other crypto currency's which will I am certain cost lots of innocent idiots a lot of money, they run for the hills! My nan asked me at the weekend if she should buy Bitcoin, I told her to take out a leveraged long on the dow with a small side bet on orange juice, much less risk:)

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vik2001 18th Dec '17 52 of 65

lovely analysis today Graham. I may dip my foot into CMC Markets after reading this report

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Edward John Canham 18th Dec '17 53 of 65

In reply to post #256133

I find it equally ironic that if I want to liquidate my portfolio and put it all on no. 9 at the Monte Carlo casino the only qualification I require is to be able to breathe. If I want to use CFD's to hedge my portfolio in the future potentially I have to pass 3 tests set by ESMA/FCA.
Where they are wanted and needed they are useless, where they are not needed or wanted they insist on interfering.


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ed_miller 19th Dec '17 54 of 65

In reply to post #255933

What's to stop governments banning crypto-currencies other than those their own central banks create? Already China has shut down a Bitcoin exchange. Whilst gold-backing is better than no backing, governments don't have to tolerate crypto-currencies that remove from them control of the financial system and facilitate tax evasion and money laundering, and they surely will take action at some stage. I agree that crypto-currencies regulated and backed by 'blue-chip' governments will be important in the future, but the current crop that are unregulated, have nothing behind them and undermine governments will surely be banned by them, despite the current speculative mania they currently enjoy. (I have no position in any crypto-currency, nor any intention of gaining one.)

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jonesj 19th Dec '17 55 of 65

In reply to post #53 governments interfere badly, where they should not be doing anything. That's why they should interfere as little as possible. Some terrible decisions have been made over the years.

In reply to post #54, the US tried banning holding gold in the 1930s & I believe they were not the first. (Thankfully it is possible to buy the physical stuff from reputable sellers with no records, which mitigates that risk).
However, Bitcoin must be at very significant risk of being banned. If it doesn't blow up first, After all, once it's lost 90% of it's value in the inevitable crash, the masses will not want to touch it again.

At least gold is proven over thousands of years.

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Metatron 19th Dec '17 56 of 65

15 years ago people were buying Gold as an insurance play and then it became a momentum play.The same occurred with Bitcoin a few years ago.Anybody who got in at those points and was shaken out by volatile dips would have serious money Neither Bitcoin or Gold are currently insurance positions.
People should look for insurance positions that are getting momentum.Personally I research commodoties and Emerging Markets.

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Metatron 19th Dec '17 57 of 65

Made mess of a sentence on previous comment - i meant `Anybody who got in ......and was not shaken out by volatile dips made serious money`

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Carey Blunt 19th Dec '17 58 of 65

In reply to post #256208

There is a separate thread in crypto currencies here which may be interesting....

The whole point of a crypto currency is that individual governments are powerless to completely ban them, it’s like trying to ban the internet. That’s not to say that crypto isn’t a bubble and that it isn’t a really poor investment but government regulation is only one of the minor risks.

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ken lowes 19th Dec '17 59 of 65

In reply to post #256098

Sorry IGG

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ed_miller 19th Dec '17 60 of 65

In reply to post #256333

Re crypto-currencies: I'll give it a read, thank you. I understood that governments can close down the exchanges, as I understand China already has for Bitcoin. Perhaps this is not correct? If it is correct then users of a given crypto-currency will lose confidence in it and stop using it - especially since the current crop have no backing and precisely zero intrinsic value; and obviously speculators will not be able to trade it. If so, the utility of block chains to make transactions untraceable will be irrelevant since the currency will fall out of use, but perhaps I am wrong in thinking the exchanges can be shut down?

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ricky65 19th Dec '17 61 of 65

In reply to post #256118

If you're short the maximum gain is 100%, you're maximum loss is unlimited!

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herbie47 19th Dec '17 62 of 65

In reply to post #256588

Yes that's partly true, unless you have a x2 or x3 short, but you don't usually short indexes all the time and best to use a stop loss. Indexes tend to fall much faster than they go up. Dow went down 20% in a day, can't remember an index going up 20% in a day. Minervini has been using QQQs to short the Nasdaq. Some people use them as a hedge rather than selling most of their shares.

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ricky65 19th Dec '17 63 of 65

In reply to post #256593

Yeah. Worth noting that with leveraged ETFs such as QQQs, maximum loss is 100%.

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Carey Blunt 20th Dec '17 64 of 65

In reply to post #256368

We should move this to the other thread but yes you are right that exchanges are the weak point in some respects but on the other hand it would require every country to legislate against exchanges and we know that one countries ban is another countries gain.
We still have tax havens etc, I would expect there to always be at least one country willing to host exchanges.
Also in China, we now have individuals performing the function of the exchanges themselves in some cases, there is an example in the “invest like the best” hash power series of podcasts that explains that better than I can do here but essentially anywhere you have people who are willing to trade, you have a market regardless of formal exchanges.

I’m not defending bitcoin here, i think it’s a bad investment and a huge bubble but not necessarily for the reasons you mention,

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gus 1065 15th May '18 65 of 65

Looks like Audioboom (LON:BOOM) might be about to go “BANG!” as it appears to have failed to raise funds for a proposed acquisition and as predicted by Graham above is about to run out of cash.

Absent a fairy godmother coming in from the wings, they may be toast.


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 Are LON:IGG's fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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