IG Group Holdings PLC (LON: IGG)

IG Group Holdings PLC (LON: IGG) is an FTSE 250 index-listed financial technology entity that operates as a global leader in online trading. It has a presence in North America, Europe, Asia-Pacific, Africa, and the Middle East.

The Company expects to release FY22 results on 22 July 2022.

Recent Trend of Dividend Payments

IGG has adopted a progressive dividend policy with consistent dividend payments twice a year. Moreover, the Company had paid an interim dividend of 12.96 pence per share with respect to H1 FY22 on 04 March 2022. The ex-dividend date was 03 February 2022.

Growth Prospects

• Reasonable Guidance: The Company had targeted medium-term revenue growth ranging from 5% to 7% in Core Markets and 25% to 30% growth in High Potential Markets.
• Focus on High Potential Markets: The Company had shown around 30% growth in the High Potential Markets revenue during H1 FY22. Meanwhile, the Non-OTC leveraged derivative revenue accounted for 16% of net trading revenue.

Key Risks 

• Weak tastytrade Guidance: The slower growth in US options trading volumes in Q3 FY22 may result in lower tastytrade revenue growth than the previously guided 25 - 30% range for FY22.
• Record US Inflation: The red-hot inflation data released on 10 June 2022 had raised fears of aggressive Federal Reserve monetary tightening.
• European Central Banking Meeting: The recent ECB meeting has hinted of 25 basis interest rate hikes in July and September 2022. Thus, it will put pressure on European Equities.
• Weak UK GDP Numbers: According to the Office for National Statistics, the UK GDP grew only 0.2% for the three months through April 2022 after 0.8% in the previous three-month period.

Key Fundamental and Shareholders Statistics of IG Group Holdings PLC.

Artemis Investment Management LLP is the most significant shareholder as it holds nearly 25.62 million shares.

Q3 FY22 Revenue Update (for the three months ended 28 February 2022, as of 16 March 2022)

• Solid Top-Line Business: On 16 March 2022, IGG reported the highest quarterly revenue of the year FY22, as Q3 FY22’s net revenue increased by 13% year-on-year to £257.2 million and year-to-date FY22 revenue also jumped by 14% year-on-year.
• Record Active Clients: The number of active clients has increased by around 32.28%, from 220,900 at the end of Q3 FY21 to 292,200 at the end of Q3 FY22.

H1 FY22 Financial & Operational Highlights (for the six months ended 30 November 2021, as of 27 January 2022)

(Source: Company Filings)

• Top-Line Business: IGG had delivered net trading revenue growth of around 16% during H1 FY22, reflecting a robust performance across all geographies.
• Profitability: The Company had shown an 8% increase in the profit before tax during H1 FY22.
• New Clients: IGG had managed to add 53,600 new clients, higher than pre-pandemic client acquisition.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 13 June 2022 at 08:44 AM GMT+1, IGG’s shares were trading at GBX 673.00, down by around 1.61% against the previous day closing price. Stock 52-week High and Low were GBX 947.50 and GBX 664.50, respectively.

On a daily chart, the stock price is hovering below the lower Bollinger band, indicating an upside potential in the stock price. Also, the 14-days RSI of ~30.14 approaches oversold territory.

Valuation Methodology: Price/Earnings Approach (FY23E) (Illustrative)

Business Outlook

IGG has ended Q3 FY22 on a good note with solid top-line business growth benefited by the positive impact of strategy expansion, diversification, and continued strong momentum. The Company has completed the sale of Nadex and the Small Exchange to Foris DAX Markets, Inc for USD 216 million. Meanwhile, the Company remained confident about the opportunities that tastytrade brings to the wider Group, because of the large total addressable market in the US. In a nutshell, IGG remained on track to deliver sustainable growth for the shareholders through a sound business model, strong cash generation, and consistent dividend payments.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the recently announced disposals, net revenue growth during H1 FY22, strong balance sheet, consistent dividend payments, and support from the valuation as done using the above method, we have given a “Buy” recommendation on IG Group Holdings PLC at the current market price of GBX 673.00 (as of 13 June 2022 at 08:44 AM GMT+1), with lower-double digit upside potential based on 9.03x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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