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Possible Reasons for the Surge in Gain Capital's Share Price

In case you have not been on a vacation last week, you've perhaps noticed the jump in the share price of Gain Capital, the company that owns the FX brokerage Forex.com.
 
The prices recorded their steepest rise on September 4 and September 5, going up by 21% and 10% respectively, with the surge finally losing pace on September 6, when the price edged lower for the session and ended at $9.72. It has been a rock and roll period for Gain's shares and in this article we briefly examine the possible reasons for the recent behavior of the group's shares.
 

Corporate structure and environment interaction

 
We start with the most obvious reason: investors sense the solid corporate structure of Gain – after a dull performance in 2012 due to weak market volatility, the company has learnt its lesson and has beefed up its institutional business, which is driven by commission fees. The latter has happened thanks to acquisitions, the latest of then being that of GFT, announced in the end of April. 
Gain Capital is now well based to withstand periods of poor market volatility which could affect its retail FX operations. 
 
But if we examine volatility indexes (such as the one produced by JPMorgan), we'll see that volatility is actually picking up, and as the company has the necessary infrastructure to support a rise in trade – it is bound to enjoy an increase in volumes and earnings. And this is what has happened lately, as witnessed in the results for the second quarter of 2013 and for July this year. No wonder then that the investors are buying into the business.
 
 

Acquisition Synergies

 
The market may be reacting to the strengthening of Gain from the synergies produced by the acquisition of GFT. Perhaps you recall that the group said that these would be realized in the third quarter of 2013.
 
 

Dividend Payments

 
Investors are happy about the upcoming dividend payments – on September 12 and September 20.
 
 

The market is strong and everyone is buying into it

 
Ok, this is apparently not the case. This is a usual reason for a pick up in the share prices of a company, but the latest data for financial commission merchants in the U.S. pictures the FX market as a rather unattractive spot for investor.
 
 

Problems at Competitors

 
We're entering into depths of speculation now. It's a fact that the biggest competitor of Gain in the U.S. - FXCM, is performing robustly, but there was something weird that happened at the broker last week. The news surfaced that James Brown, presiding independent director of FXCM, has sold a large stake in the broker. This fact itself does not hint at troubles at the company, but it's also true that the steepest rise in the share price of Gain happened right after the news of this disposal became available to the wider public. 
 
 

Rumor of Acquisition

 
We're still in depth of speculation here. One of the most likely reasons for a surge in any company's share prices is its rumored acquisition. I'm using the word “rumored” because there has not been even a hint at such a thing happening. However, we should note that the volume of Gain's shares traded last week approached that recorded when FXCM made its unsuccessful bid for the company in April. And then, there is this suspicious disposal of shares by Brown...
 
To give a more skeptical view on this possibility, I must note that after the latest upsurge in its share price, Gain Capital has become quite a pretty expensive asset to buy. In April, FXCM bid $5.35 per Gain's share, which gave shareholders a 25% premium. You do the math do decide how much should a potential buyer pay for Gain if the price hovers around $10 per share. 
 
 

NO COMMENT

 
Finally, Gain Capital has issued a press release saying the company had not comment on the market activity. This means two things: either the company's management knows what's behind these developments but is prevented from saying it out loud due to confidentiality policy; or the management has no idea of the reasons behind the surge.
 
 

Temporary Phenomenon

 
Last, but not least, we must accept the possibility that the spike in Gain's share prices is a temporary phenomenon, which has no serious far-reaching underlying factors. After all, the price came down on Friday.
 
 

About GAIN Capital

 
GAIN Capital Holdings, Inc. (NYSE: GCAP) is a global provider of online trading services. GAIN's innovative trading technology provides market access and highly automated trade execution services across multiple asset classes to a diverse client base of retail and institutional investors.
 
GAIN's businesses include FOREX.com, which provides retail traders around the world access to a variety of global OTC financial markets, including forex, precious metals and CFDs on commodities and indices; GTX, a fully independent FX ECN for hedge funds and institutions; OEC, an innovative online futures broker; and GAIN Securities, Inc. (member FINRA/SIPC), a licensed U.S. broker-dealer.
 
GAIN Capital is headquartered in Bedminster, New Jersey, with a global presence across North America,Europe and the Asia Pacific regions.  For further company information, visit www.gaincapital.com.
TAGS: gain capital  gain capital forex  forex.com  forex.com broker  fgain capital shares  gain capital share prixces  rise in share prices  us brokers  united states forex brokers  share price performance  earnings  capital  retail forex  institutional busines 

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