Could an analyst’s positive comments regarding Gain Capital Holdings Inc (NYSE:GCAP)Â shares be a telling sign for upcoming winter FX broker volumes as the calendar crosses over into 2015? Forex broker volumes have roared back to life to highs not before seen after relatively dimmer 2014 spring and summer months which saw volumes return to a lower steady state, but still much higher overall than the average of the last few years.
Investment bank Keefe, Bruyette & Woods (KBW), which covers both GCAP and FXCM Inc (NYSE:FXCM), has taken notice of the improved environment for Forex brokers and raised its earnings estimates for both firms, as well as its share price target for GCAP, from $9 to $10 . GAIN reacted by trading up more than 6% in Monday trading to close at $9.04. FXCM shares were up just 0.2%, although they are already trading near a 52 week high following a nice run the past eight weeks.
In KBW’s words,
We believe that the retail FX brokers, GCAP and FXCM, should benefit from the higher FX volatility and better volume. GCAP has more leverage to a better trading environment given that it’s a market maker, through higher revenue capture as well as volume, while FXCM is mostly agency execution (outside of Lucid & CFDs).
We raise 4Q EPS estimates for GCAP to $0.40 from $0.29 and for FXCM to $0.19 from $0.16 primarily to reflect the resilience of FX volatility and volume into year-end. Our forward estimates also increase modestly on growth from a higher volume base. For GCAP, our higher 4Q estimate also reflects a higher revenue per million estimate, as we expect that the higher-volatility environment helped boost its market-making revenue capture. Our price target for GCAP goes to $10 from $9.
The lower barrier to entry to FX trading of the late 2000s and subsequent surge in the online popularity of trading FX coinciding with economic stimulus measures of late 2012, in particular the launch of massive yen depreciation known as ‘Abenomics’ has created the conditions for sustained overall higher volume of trading activity going to Forex brokerages.
(See Gain Capital Volume Chart Below)
FX brokerage volume such as Gain Capital (GCAP) has exploded over the last few years to higher averages in a high speed interconnected online world
Check out the 5 day price chart of Gain below, and notice the spike today helped out by this upgrade…$10 is definitely within sight as GCAP traded at $9.05 up 0.55 cents on the day (+6.47%). Stay tuned to LeapRate to get the latest equity coverage from companies operating in the Forex and online trading industry.
GCAP 5 day chart, closing now above the $9 handle heading into 2015.