IG Group Holdings Plc

IG Group Holdings Plc (LON: IGG) is an FTSE 250 listed financial services Company, which provides fast and flexible access to the financial markets through the platform and applications.

The Company will announce interim results on 21 January 2021.

Investment Highlights – IG Group Holdings Plc – Expensive at GBX 850.50

• Despite the strong performance in the first half of the financial year 2021, the Company is operating cautiously due to the uncertainty created by the covid-19 pandemic.
• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Book Value multiples of the IG Group Holdings Plc are currently higher as compared to the corresponding multiples of the Investment Banking & Investment Services industry, reflecting overstretched valuations.
• In the financial year 2020, the Company has a debt/equity ratio of 0.14x, which is continuously increasing on a year-on-year basis.
• From the technical standpoint, 14-day RSI is in overbought zone and is currently supporting downward movement (around 72 level), which means the stock price could decline in the short term.

Key Risks

• IG operates in a dynamic competitive environment, and the net trading revenue is dependent on the number of active customers and the level of their activity.
• The Group also faces operational risks, including those arising through technology, people, process and external events.

Trading Update (released on 15 December 2020)

• The Company delivered a strong performance in the second quarter with revenue of approximately £207 million (Q2 FY2020: £120.8 million), reflecting elevated trading volumes across a larger client base.
• IGG witnessed a material increase in the size of the active client base, reflecting strong client acquisition.
• The Company’s net trading revenue in H1 FY2021 is expected to be £416 million (H1 FY2020: £249.9 million).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown solid performance in the first half of the financial year 2021 and started H2 FY2021 with strong momentum. Despite the strong financial performance, the Company need to manage its operating expenses effectively, unless it would impact the financial performance in the near future. IGG continue to make an investment in technology to retain and attract clients for future growth. The Company’s net revenue is benefited by elevated trading volumes across a larger client base. Presently, the Company is trading near a 52-week high, raising doubts at its upside potential at current prices.

Based on the factors as highlighted above, we believe the stock of IG Group Holdings Plc is “Expensive” at the current price of GBX 850.50 (as on 16 December 2020, before the market close at 8:10 AM GMT), with support from recovery in the trading environment and increased client base needs to be evaluated at a later stage.

Purplebricks Group Plc

Purplebricks Group Plc (LON: PURP) is an AIM-listed Company engaged in the business of real estate agency. The Company has operations in Australia, the UK, the US and Canada.

Investment Highlights – Purplebricks Group Plc – Avoid at GBX 90.13

• Despite the improvement in financial performance in H1 FY2021, the Company remained cautious on the economic outlook, due to the impact of the covid-19 pandemic.
• In the last one year, the Company delivered a negative return of ~ 23.59% and delivered significantly lower returns compared to the benchmark Index (FTSE-AIM Index).
• As per valuation metrics, Price/Earnings and Price/Book Value multiples of the Purplebricks Group Plc are currently higher as compared to the corresponding multiples of the Real Estate Operations industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is in the overbought zone and is currently supporting downward movement (around 85 level), which means the stock price could decline in the short term.

Key Risks

• The Company operates in highly competitive markets, which could adversely affect the Company’s results.
• Any change in the regulations and government policies could affect the overall business of the Company.

Financial Highlights – H1 FY2021 (31 October 2020) (released on 15 December 2020)

(Source: Interim Report, Company Website) 

• In the first half of the financial year 2021, the revenue declined by 6%, while average revenue per instruction and total fee income surged by 3% and 6%, respectively.
• The Company witnessed an improvement in profitability margins for the period, with an increase in total instructions by 8%.
• The cash balance as on 31 October 2020 surged by £44.8 million to £75.8 million (30 April 2020: £31 million).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales (NTM) (Illustrative)

Conclusion

The Company has shown an improvement in financial performance in the first half of the financial year 2021. Despite the lower revenue, the bottom-line performance improved, with higher profitability margins. The liquidity positions for the period also improved. The Company expects adjusted EBITDA for FY2021 to exceed the upper end of the set range. The Company also remained cautious due to ongoing uncertainty by the covid-19 pandemic. The stock made a 52-week low and high of GBX 22.05 and GBX 134.80, respectively.

Based on the factors as highlighted above, we believe the stock of Purplebricks Group Plc is “Avoid” at the current price of GBX 90.13 (as on 16 December 2020, before the market close at 8:15 AM GMT), while we watch for results of the shift in focus on digital innovation in FY2021.

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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