IG Group Holdings PLC

IG Group Holdings PLC (LON: IGG) is an FTSE 250 listed financial technology entity that operates as a global leader in online trading.

FY22 results are expected to be released in July 2022.

Investment Rationale – BUY at GBX 727.00

• Positive Q3 Revenue Update: On 16 March 2022, IGG unveiled the highest quarterly revenue of the year FY22, as Q3 FY22’s net revenue increased by 13% year-on-year to £257.2 million. It reflected the impact of strategy expansion, diversification, and continued strong momentum. The year-to-date Q3 FY22 revenue also jumped by 14% year-on-year.
• Decent Fundamentals: IGG had delivered net trading revenue growth of around 16% during H1 FY22, reflecting a robust performance across all geographies. It had shown an 8% increase in the profit before tax during H1 FY22.
• Promising Outlook: FY22 revenue is likely to moderately exceed the current market expectations now, while the Group is well-positioned for future growth. The medium-term revenue guidance remained unchanged.
• Acquisition Benefits: The completion of the tastytrade acquisition shall strengthen the Company’s growth and diversification ambitions, especially in the US markets.
• Favourable Components: On a forward 12-month basis – EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book Value valuation multiples are quite lower than the median of the Investment Banking & Investment Services industry. Adjacently, the Dividend Yield is higher than the industry median.
• Technical Indicators: From a technical standpoint, the momentum oscillator 14-day RSI (23.11) is close to an oversold scenario, while the IGG’s stock price is trading close to the lower Bollinger Band.

Key Risks

• Business Risk: The moderation in trading activity and client acquisitions can impact the Company’s growth trajectory.
• Macroeconomic Uncertainties: The interest rate worries, the US dollar hitting two-decade peaks, persistent inflation, and subdued economic forecasts can continue to impact corporate profits and put pressure on equity markets.

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

(Source: Company Filings)

• New Clients: IGG had managed to add 53,600 new clients, higher than pre-pandemic client acquisition.
• Dividend: IGG 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.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23) (Illustrative)

*Peers: HSBC Holdings PLC, Polar Capital Holdings PLC, and Jupiter Fund Management PLC.

*All selected peers are LSE-listed Companies from the Financials sector.

Conclusion

IGG has accelerated progress regarding the proposed sale of Nadex and the Small Exchange. Moreover, the Company expects to close the deal during Q4 FY22.  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.

Based on the strong revenue growth, robust client base, consistent dividend policy, tastytrade acquisition with support from the valuation as done using the above method, we have given a “BUY” recommendation on IG Group Holdings PLC at the closing market price of around GBX 727.00 (as of 9 May 2022), with lower double-digit upside potential based 9.44x Price/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 decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which 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 5: ‘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.

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 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 unfavorable movement in the stock prices.

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