London Capital Hldgs Share Discussion Threads

[boros10] 12/3/2013 08:12

Big increase in volumes and sales announced by IG Index. Will LCG have benefited from the return of volatility? If not then serious questions arise about its model.

[topvest] 10/3/2013 21:33

What I don't understand is why LCG has done so badly in the last 3/4 years, with higher customer numbers whereas they were very profitable pre-2009. Does anyone have a view on this? Has it just been poorly managed with a high cost base which has been compounded by one-off's and low volatility or is something else going on. Any thoughts?

[canteatvalue] 10/3/2013 21:01

"Is this a good business? London Capital is well run but it operates in an appalling industry. There are in reality no barriers to entry. Anyone with money can get into the game. As such margins will never be great. Staff costs are high and fixed. And because some clients are always cleaned out you always need to spend heavily to get fresh meat into the mincer. Some companies do that via advertising (Cantor). Others do it by using an affiliate model (London Capital) but while that may pare direct ad costs it means a lower margin on every trade and higher fixed costs (staff). Whichever way you look at it, this is not a business you want to own."

Really? The market leader (IGG) has 45% operating margins and an ROE over 30% - I call that an absolutely fantastic business. LCG managed 40%+ op margins pre-2009 and I see no reason why they can't do at least 30% at some point again under more experienced, cost-focused management. None of the reasons Tom cited weren't applicable in pre-2009 when the business was showing characteristics very close to what IGG are showing today. I don't understand how he can draw that conclusion from an analysis of the financial statements. That said, I do appreciate reading the 'bear case' to try and find flaws in my own reasoning.

[sonham76] 10/3/2013 13:38

Those who follow the appalling calls of TW might see that as a signal these have bottomed out.

[topvest] 10/3/2013 13:35

A typically poor article in my view. There are significant barriers to entry in this business, such as a highly regulated business environment and regulatory capital rules. The free cash point is plain stupid. Anyone doing the level of business that LCG are doing would need the £11m regulatory capital as well. I agree that LCG has been a disaster over the last few years. I have made mistakes, and refuse to compound that by buying more. However, I will not sell at this low valuation. If there are no other bad surprises and the business can be saved it will ultimately be worth much more in 1/2 or 3 years time. I will wait.

[topvest] 06/3/2013 20:05

It's all a bit odd. At least we will be getting audited accounts through soon. I suppose there is always the chance of Simon Denham, Frank Chapman and Rachel Woodford trying an MBO! Any thoughts? Wouldn't exactly cost them much would it, given they already have 30% and most of the price could be self funded with so much cash in the business.

[topvest] 06/3/2013 20:03

It's all a bit odd. At least we will be getting audited accounts through soon. I suppose there is always the chance of Simon Denham, Frank Chapman and Rachel Woodford trying an MBO! Any thoughts?

[trident5] 06/3/2013 19:25

Sea and Sky - you may be right, but when two founders leave just before and during a bid process, and 3 bidders arrive on the same day (suggesting it was being hawked, rather the approached) and they walk too - everything may be in place for a recovery (the markets are now volatile - so trading s/be good now)but on the other hand - that's 5 parties who know a dammned sight more than you or me and they've all packed their bags.

[sea and sky] 06/3/2013 18:57

but the results don't look that way trident. if there was anything serious lurking it would most likely be prison for various recent incumbents since the recent results show nothing out of the ordinary

[trident5] 06/3/2013 18:18

I got out with a big loss today - but something doesn't add up with the executives disappearing at such a time, and 3 bidders walking away - too much risk that there's something nasty lurking - follow the feet.

[sea and sky] 06/3/2013 17:12

well the potted history of the new bod looks ok. Lets hope he's joined to get it up the greasy pole and flog it for a decent price...

[badtime] 06/3/2013 16:45

Might dip back in at this rate

[masurenguy] 06/3/2013 16:20

A couple of large sells of 150,000 and 250,000 shares this afternoon @30p has now tanked the price.
At 29p the market cap is now just £15.5m which is a 25% discount to net cash !

[masurenguy] 06/3/2013 15:53

I'd be amazed if there were any financial irregularities here. The 3 founders still collectively hold 30% and 5 institutions (L&G, Artemis, Hargreaves Hale, Axa & Slater Investments) hold 45% of the stock. The latter certainly would have done their DD and being City based LCG must be fairly easy to audit.

In addition to this, two of their NXD's Vardey (Chairman) and McCaig have a history of working or prior association with some major London financial institutions and I doubt that they would have got into bed with a tiddler like LCG if there were any risks to their reputation arising from dubious practices. I think that the recent historical at LCG is more related to poor management controls in relation to FSCS issues as opposed to any nefarious activities. We will just have to wait and see what impact Mark Slade can have
here once he has got his feet under the table. Here is his backgound summary

With a City career spanning 30 years, he has a wealth of experience growing financial services businesses. Having begun his career on the London Metal Exchange, Mark became Managing Director of FIMAT's Metals Division in 1995 (now Societe Generale), which he built into one of the top three dealing ring members. In 2000 Mark became Managing Director of Refco Overseas heading up the European futures business for the Group. In 2006 Mark founded Marex Financial (now Marex Spectron) with Marathon Asset Management of New York which grew to become a major independent futures broker, before successfully selling the company to private equity and leaving in 2011. In addition to his corporate roles he has also served as a Director of the LME (7 years) and the Futures and Options Association (3years).

[sea and sky] 06/3/2013 15:27

I am pretty sure clients money is not at risk. These days (by law) they have to ring fence it in separate accounts - no it is just the confusion caused by the senior mngmt leaving plus the bid on bid of stuff. If they (SD and RW) were unhappy with the price why would they go since no deal had actually been done. Unless of course, the Institutions weren't ready to sign up to 60-90p and SD and RW were. Maybe that was why they left as they didn't get their own way. A tad petulant in my book though. If you are a founder and CEO surely this is your 'baby', your pride and joy? Having said that EZJ does better without Stelios about I think.

Until the the new CEO gives some clear messages as to the why's and wherefore's it will be 'buyer beware'. So I expect this share to languish for a few months until we see the cut of his jib. I still hold.

[canteatvalue] 06/3/2013 15:04

Leon,

I'm not especially concerned about that effect. A far worse test of such panic came when two related firms, Worldspreads and MF Global, were implicated in fraudulent use of customer funds. IMO, having the industry tarnished by such terrible PR (Customers: "You could be dealing with a firm that'll steal your money" / White Label Partners: "Think of the reputation damage if your partner's also engaged in fraud of your clients") is orders of magnitude more scary but it had little or not effect on the rest of the industry. In comparison, "This company just changed senior management and no one wants to buy it" probably barely even registers next to the fear of having your money taken fraudulently.

The "is there something lurking under the bonnet we don't know about which caused the firms not to bid" is by far and away my biggest concern here at the moment but that's really something I only see investors being concerned about rather than clients of the company (there's no evidence to suggest it other than investor paranoia, whereas the previous fraud headlines were far more noticeable and vividly available to clients/partners).

I still think the fact the previous management own so much of the company leads me to believe there's no incentive for them to have caused serious problems 'under the hood' and a disagreement over price appears to be a more likely explanation. If that is the correct answer, I don't think my thesis has changed at all in the past few months. If anything, the fact we have new management could be a plus - I think the business has been inefficiently run over the past few years and this could be the catalyst needed to rectifying the bloated cost base. But hey, I'm an optimist! :)

[boros10] 06/3/2013 14:26

The cash and tangible asset backing is great but all the uncertainty over the bid and the management changes may have unsettled some of the white label partners and frightened away some of the Capital Spread punters.

I got this one badly wrong so cut my holding by 50% yesterday. I am now back to the holding I had in the days after Simon first presented at Mello.

[canteatvalue] 06/3/2013 13:42

Davidosh - I would also be keen on meeting new management to understand the story around recent changes + the bid. Do you think they'd be open to another london meeting so shortly after the mello?

[davidosh] 06/3/2013 12:40

I think I would want to meet the new management before adding to my investment. I only invested just before the bid so I need to get a real handle on all the changes and what the strategy may be now they are remaining independant.

[canteatvalue] 06/3/2013 12:17

S&S - I suppose it depends what you consider a big position :) It's currently ~4% of mine at the existing price and I was thinking of moving to large single digit % so not much above where you are at the moment. I perceive the risk/reward here as being very favourable as the asset backing is so large protecting the downside which is why I'd feel comfortable with it being a decent chunk of my portfolio at the existing price - it's at a discount to the cash on the balance sheet.

[sea and sky] 06/3/2013 11:54

CEV: I wouldn't think of making it my biggest holding to be honest. Only an opinion but the risk to your capital is high since we don't know exactly what is going on. LCG is about 5% of my portoflio. I would much rather take risk on RDSA or some such than LCG.

We should remind ourselves that the DIV has ceased (for now). But with significant shareholdings by the owners etc we can only hope they have some idea of what they are doing. If they don't they will be taking a cold bath along with the rest of us.