IG Group Holdings PLC

IG Group Holdings PLC (LON: IGG) is a 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.

Investment Rationale – BUY at GBX 770.50

• IGG demonstrated a solid performance in Q1 FY22, underpinned by the quality and size of the client base. Therefore, the Company remained confident of delivering on its medium-term targets for the High Potential Markets and Core Markets+ portfolios.
• IGG has a large client base, superior platform, and substantial opportunities to deliver sustainable value for its shareholders The total clients’ number has grown to 225,900, reflecting a 12% increase in Q1 FY21.
• On a forward 12-month basis – EV/EBITDA, and Price/Earnings valuation multiples are quite lower against the industry median of Financial Services sector. Adjacently, Dividend Yield is higher than the industry median.
• From a technical standpoint, the momentum oscillator 14-day RSI (~28.64) indicating an oversold scenario, while the IGG’s stock price is trading close to the lower Bollinger Band.

Key Risks

• The tastytrade’s acquisition can also fail to deliver the expected synergy amid the market volatilities.
• The likelihood of China Evergrande’s debt default risk poses a systematic risk to the financial markets.
• The anxiety over interest rates increase with a rise in US Treasury Yields can extend sell-off in the short-term.
• The moderation in trading activity and client acquisitions can impact the Company’s growth trajectory.

First Quarter Revenue Update (for the three months to 31 August 2021, as on 16 September 2021)

 (Source: Company Website)

• During Q1 FY22, IGG generated £227.5 million of revenue, reflecting a higher value than Q1 FY21 and Q4 FY21.
• The tastytrade division demonstrated another quarter of record revenue generation.
• The net trade revenue (excluding tastytrade) grew 4% year-on-year in Q1 FY22 to £200.9 million.
• The Group has robust capital and liquidity positions to support client growth and achieve its strategic growth targets.

One Year Share Price Chart

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

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

Conclusion 

IGG delivered record revenue and profit in FY21 and it carried the strong momentum in Q1 FY22 as well. The completion of the tastytrade acquisition shall strengthen the Company’s growth and diversification ambitions, especially in the US markets. Moreover, the Company has a consistent dividend policy and has also improved its MSCI rating from ‘BBB' to 'A'. Furthermore, active clients remained 40% above the pre-pandemic level despite the moderation in new client acquisitions. Hence, the Group is well-positioned for future growth. The stock made a 52-week High and Low of GBX 960.00 and GBX 735.00, 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 770.50 (as on 12 October 2021, 8:06 AM GMT+1), with lower double-digit upside potential based 2.71x Price/Book (approx.) on FY22E Book Value Per Share (approx.). 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

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

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