IG Group Holdings PLC

London, the United Kingdom-based IG Group Holdings PLC (LON: IGG) is a financial services company which through its range of dealing platforms and apps provide traders with fast and flexible access to the financial markets. The group operates in 16 countries and is the leading provider of contract for difference (CFDs) worldwide. The core offering of the group is leveraged trading, and the group give investors leveraged access to over 16,000 financial markets, along with a growing suite of non-leveraged stock trading and wealth-management products to complement the core offering of the group.

The company will announce the pre-close trading update on 5^th December 2019 and interim results on 21^st January 2020.

Trading Update (as on 19^th September 2019)

(Source: Trading Update, Company Website)

For the first quarter of its financial year ending 31 May 2020, revenue in Q1 FY20 was £129.1 million, in line with the prior year as the company benefitted from an increased client trading activity and growth in the number of active clients. In Q1 FY20, revenue in the core markets (OTC leveraged derivatives and stock trading and investments) was £109.2 million, and revenue from the significant opportunities (OTC leveraged derivatives and exchange-traded derivatives) was £19.9 million.

Financial Highlights (for the year ended 31^st May 2019, £million)

(Source: Annual Report, Company Website)

The company’s net trading revenue for the financial year ending 31st May 2019 declined by 16% to £476.9 millionas against £569.0 million in FY 2018. The decline in revenue was reflected by the impact created due to ESMA measures and unfavourable market conditions. The company’s net operating income stood at £477.2 million in FY 2019 versus £571.2 million in FY 2018. In the financial year 2019, the company’s operating profit was reported at £192.9 million as against £281.1 million in FY 2018.

The company’s PBT (Profit before tax) stood at £194.3 million in FY 2019versus £280.8 million in FY 2018. The profit for the year attributable to the shareholders was £158.3 million in FY 2019 versus £226.4 million in FY 2018. The company’s basic earnings per share for the FY 2019 was down by 30% to 43.1 pence from 61.7 pence in FY 2018. The company’s diluted earnings per share for the FY 2019 stood at 42.8 pence versus 61.2 pence in FY 2018.

Share Price Performance

Daily Chart as at November-28-19, before the market closed (Source: Thomson Reuters)

On 28th November 2019, IG Group Holdings PLC shares were trading at GBX 687.60 at the time of writing before the market close (at 1:13 PM GMT), down by 0.348% against the previous day closing price. Stock's 52 weeks High and Low are GBX 696.20/GBX 467.40. The company's stock beta was 0.20, reflecting the lower volatility as compared to the benchmark index.

Valuation Methodology


Conclusion
The company targets £100 million in revenue from the significant opportunities and 3-5% per annum growth over the medium term in its core markets.

The Group faces client credit risk, counterparty credit risk, liquidity risk and capital adequacy risk.The company faces operational risks, including those arising through technology, people, process and external events. IG operates in a dynamic competitive environment, and its revenue is dependent on the number of active customers and the level of their activity. The business, therefore, faces risks relating to the market conditions and its competitive position. The business operates in a number of geographic markets and is regulated by the various different financial services regulators in those markets.

While the company is not expected to be directly impacted by the impending Brexit, as the exchange rate adjusts to the new market conditions, the company can experience increased volatility in the sterling gold price, which can affect the security of pledge and the revenues from scrap operations. Also, the company would need to be agile and adapt to the changing market landscape, as customers increasingly get attracted by online services, which are backed by more efficient technology. Moreover, online operations mean a decline in barriers to entry, which can increase competition. The company is trading near a 52-week high, indicating a limited upside potential.

Based on the above rationale and support from valuation done using the above method, we have given a “Sell” recommendation at the trading price of GBX 692.80 (as on 28^th November 2019, at 9:00 AM GMT) based on 2.60x NTM Price/Book Value (approx.) on FY20E book value per share (approx.).

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

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.