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. It has a presence in North America, Europe, Asia-Pacific, Africa, and the Middle East.

IGG expects to pay 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.

Investment Rationale – BUY at GBX 777.50

• Growth Drivers: The Company has a large client base, superior platform, and substantial opportunities to deliver sustainable value for its shareholders The total clients’ number rose by around 42% to 320,400 during H1 FY22.
• Key Disposal Activities: 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.
• Enhanced Focus on High Potential Markets: IGG showed 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.
• Favourable Components: On a forward 12-month basis – EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book Value valuation multiples are quite lower against the industry median of the Financial Services sector. Adjacently, the Dividend Yield is higher than the industry median.
• Technical Indicators: From a technical standpoint, the momentum oscillator 14-day RSI (~43.49) is close to an oversold scenario, while the IGG’s stock price is trading close to the lower Bollinger Band.

Key Risks

• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Business Risk: The moderation in trading activity and client acquisitions can impact the Company’s growth trajectory.

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.

One Year Share Price Chart

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

Valuation Methodology: Price/Book Approach (FY22) (Illustrative) 

Conclusion 

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. IGG has adopted a progressive dividend policy with stable dividend payments twice a year. Moreover, the completion of the tastytrade acquisition shall strengthen the Company’s growth and diversification ambitions, especially in the US markets. The stock made a 52-week High and Low of GBX 1,004.90 and GBX 752.00, respectively.

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 current market price of around GBX 777.50 (as on 21 February 2022, at 8:37 AM GMT), with lower double-digit upside potential based 2.36x Price/Book (approx.) on FY22E Book Value 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: 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. 

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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