What Is Helping the Profit Rise for These Two FTSE 250 Companies- G4S And IG Group

Summary

• G4S pre-tax profit for the six-month period ended 30 June 2020 doubled
• IG Group's profits jumped by 52 per cent due to surge in trading activities during Q4
• Different factors like Brexit, Covid-19 etc. are expected to continue tormenting the stock market in the near term

The stock markets in Europe and the United Kingdom retreated on Friday. According to the Office for National Statistics, the retail sales in the UK were up by 13.9 per cent month on month in June 2020. Meanwhile, the UK's PMI index, which is an indicator of economic trends, for the manufacturing sector, increased to 57.1 in July from 47.7 in June. A PMI of above 50 indicates an increase in economic activity in comparison to the previous month, due to the easing of lockdown.

Since the lockdown in March, the FTSE 250 index has regained more than 33 per cent. The FTSE 250 index, which reflects UK’s domestic economy, was marginally down by 1.28 per cent to 17,264.84 on Friday. Centrica Plc (LON:CNA) was amongst the top risers as the company’s stock soared by 16.77 per cent. Cineworld Group Plc (LON:CINE) was amongst the top fallers; the stock plunged by 14.28 per cent.

G4S Plc’s Profit doubled in H1 FY20

According to a recent release made by the FTSE 250 listed security company, G4S Plc (LON:GFS), the pre-tax profit of the company for the six-month period ended 30 June 2020 doubled, coming at £217 million in the first half of 2020 in comparison to £108 million a year ago. This exceptional rise in profit could be attributed to a £171 million gain on disposal of conventional cash businesses to the logistics company, Brink’s in February 2020, enabling GFS to focus on the core integrated security solutions. G4S Plc is a provider of security and monitoring systems in the UK. The company’s statutory revenue surged from £6,863 million in FY15 to £7,758 million in FY19 over the course of four years with a CAGR (Compounded annual growth rate) of 3.11 per cent.

The security company’s underlying revenue was down by 1.5 per cent to £3,353 million for the six-month period ended 30 June 2020 in contrast to the same period last year. Moreover, the statutory revenue fell by 7.4 per cent year-on-year to £3,525 million in the first half of the fiscal year 2020 (H1 FY19: £3,807 million). The company’s operating underlying cashflow was up from £164 million (H1 FY19) to £364 million in the first half of the fiscal year 2020. However, the company’s underlying PBITA (Profit Before Interest, Tax and Amortisation) decreased by 4.6 per cent year-on-year to £187 million during the first half of 2020.

The board has decided to prioritise the financial strength of the company in the near term has therefore concluded that the company will not pay an interim dividend for 2020. The company shall resume dividend pay-outs once the economic outlook surrounding the pandemic becomes a lot more positive.

Given the macroeconomic uncertainty prevalent in the economy, failure to deliver upon existing critical contracts effectively and significant customer payment default could affect the revenue and profitability of the company.

Also read: Review on Performance of 3 FTSE 250 Stocks- BEZ, BOY, and GFS

IG Group Holdings Plc’s FY20 net trading revenue up by 36 per cent

Spreadbetter, IG Group's average trading volumes tripled during the unprecedented crisis. IG Group Holdings Plc (LON:IGG) provides online trading platform in the Over the Counter (OTC) leveraged derivatives, exchange-traded derivatives and share dealing and investment instruments globally. The company primarily offers leveraged derivatives that include contracts for differences (CFDs) and spread betting (provided in the UK and Ireland only). The company operates in a cut-throat competitive space, and the net trading revenue is primarily dependent on the number of transactions carried out by active customers and increased level of their activity.

During the unprecedented crisis, a lot of wealth was wiped off from the markets due to panic-selling exercised by the investors. This could have led to a surge in transactions through the trading platform of the company. Moreover, the company charges reasonable brokerage in comparison to other trading platforms.

The net trading revenue was up by 36 per cent year-on-year from £476.9 million in FY19 to £649.2 million in FY20. During the fourth quarter of 2020, the net trading revenue doubled year on year to £259.5 million in contrast to £117.9 million (Q4 FY19). This reflected the unprecedented level of client trading activity from the continued period of catastrophe witnessed across global financial markets caused by the novel coronavirus.

During the first quarter of the financial year 2020, net trading revenue delivered stable growth of 9 per cent. The Group’s active clients rose by 34 per cent to 239,600, with OTC leveraged clients rising by 36 per cent in FY20 in contrast to the previous year (FY19). The Company recorded a profit before tax of £295.9 million, surged by 52 per cent in the year ended 31 May 2020. (FY19: £194.3 million). During these unprecedented times, when most of the companies are trying to preserve cash, IG Group declared an annual dividend per share of 43.2 pence.

OTC leveraged trading revenue increased by 37 per cent year on year to £617.2 million in FY20. Exchange-traded Derivatives surged by 9 per cent to £18.4 million, while Stock Trading & Investment was up by 57 per cent to £13.6 million in FY20.

Also read: Investors Need Not Miss These Top 5 Online Share Dealing Accounts

Recent stock market trends have continued to exhibit heightened levels of volatility, specifically during the lockdown. As the UK is believed to have passed its peak, the volatility has moderated slightly. IG Group has always been client-focused and has continuously evolved and innovated to exceed the expectations of its clients.

Given the plethora of uncertainties in the UK market with respect to Brexit, coronavirus pandemic and other macroeconomic factors such as a crash in oil prices, are expected to continue tormenting the stock market in the near term. The path to recovery from the carnage caused by the Covid-19 pandemic and its economic impact remains gloomy.