LMAX Looking Better as Betfair Reports Results


Betfair Group PLC made an announcement today via the London Stock Exchange's Regulatory News Service revealing their preliminary results for the year to April 30th 2012. They headlined with the opinion that:

A year of building momentum leaves us well placed for future growth

Long suffering shareholders will be looking forward to that growth, because this is how Betfair shares have fared since the IPO back in October 2010:

Betfair weekly chart since their IPO

Betfair weekly chart since their IPO

As you can see, eager buyers of the IPO suffered a sudden shock and the Betfair share price is currently languishing at around half the early peak of just under £16.00. As Betfair point out in the announcement:

Betfair owns LMAX, which operates a financial trading platform which has evolved from Betfair's exchange platform technology.

The LMAX multilateral trading facility was also launched back in October 2010, and has endured an even rockier ride than their parent company.  Here at the Trading Gurus we've been following LMAX very closely since the beginning, but even after 18 months only a small proportion of our trading volume takes place on their MTF.  The main reason for that is because we have had some difficulty in finding sufficient depth of liquidity available when we needed it.  Matters have been improving recently though, and perhaps these results reveal at least part of the reason?

Following a change of management in April 2011, LMAX has successfully transitioned towards a sales-led distribution strategy with an increased focus on liquid foreign exchange and commodity products. The business has built an experienced sales team and is establishing a wide international reach. The new strategy has delivered much improved results in FY12 and LMAX has outperformed the business plan developed by the new team.

Customer traction has improved throughout the year, leading to strong volume growth in FY12. In the year LMAX matched $85bn of foreign exchange volume (FY11: $9bn), delivering an annualised run-rate of c.$300bn in April 2012. The number of trades on the platform has increased from 4,000 a month to 300,000 a month over the period. LMAX now ranks in the top 30 retail FX providers globally and has firmly established proof of concept for its exchange technology in this market. The business is now focused on taking its key messages of speed, price and reliability to a wider audience of customers to build further volume flows and liquidity on the platform.

Moving on to the "key message" of the LMAX bottom line, the report lays out the numbers:

Overall LMAX revenue increased by 14% to £4.0m (FY11: £3.5m) driven by strong growth from the LMAX platform. Revenue from the platform increased from £0.1m to £1.0m, with over 70% of this delivered in the final quarter. Tradefair, our white label financial spread betting business, continues to contribute the majority of overall LMAX revenues, although revenue in this business declined to £3.0m (FY11: £3.4m) due to reduced levels of financial market volatility.

LMAX generated an EBITDA loss of £6.0m (FY11: £5.8m) reflecting continued investment in the business and expansion of its sales capability.

A loss of £6m on revenue of £4m, only £1m of which derives from the MTF itself suggests the new team at LMAX still have a lot of work to do! I asked a member of the LMAX team if they had anything to add regarding how they intended to climb the rest of the mountain that still lies before them. This was their itemised response:

  • LMAX was launched in glare of the Betfair IPO
  • We made mistakes
  • We've outperformed the new business plan
  • We have competitive pricing
  • It's clear that there is significant quarter on quarter volume growth.
  • We've established proof of concept
  • The challenge now is getting sufficient volume to become profitable

Here at the Trading Gurus we'll now be doing our own little bit to help increase volume through the LMAX MTF over the quarters to come. We trust that as a result both of us will be highly profitable in the very near future!

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