IG Group Holdings PLC (LON: IGG)

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. The Company is listed on the FTSE 250 index.

Recent Trend of Dividend Payments

IGG has adopted a progressive dividend policy with consistent dividend payments twice a year. Moreover, the Company will 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.

Growth Prospects

• Strategic Target: IGG demonstrated a solid performance in H1 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.
• Robust Clients Growth: 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 had made accelerated progress regarding the proposed sale of Nadex and the Small Exchange. Moreover, the Company expects to close the deal during Q4 FY22.
• Focus on High Potential Markets: The Company had shown 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.

Key Risks

• Inflation Concern: Due to the inflationary pressure, the Bank of England increased the Bank Rate by 25 basis points to 0.50%. It can keep the equity market under pressure amid the rising US Dollar index.
• Strategic Agility: The top-line business would be adversely affected in case the strategy fails to deliver a sustainable business model with differentiated service offerings.
• Acquisition Risk: The financial position could be hampered due to the overvaluation of the target company, ineffective due diligence, and failure to identify proper synergies.

Key Fundamental Statistics & Shareholding Pattern of IG Group Holdings PLC.

Artemis Investment Management LLP is the most significant shareholder as it holds nearly 25.62 million shares as of 31 December 2021.    

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

 (Source: Company Filings)

• Top-Line Business: IGG had delivered net trading 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.

Financial Ratios (FY21)

Share Price Performance Analysis

   (Source: Refinitiv; Analysis done by Kalkine Group)

On 07 February 2022, at 08:44 AM GMT, IGG’s shares were trading at GBX 784.00, down by around 0.95% from the previous day closing price. Stock 52-week High and Low were GBX 960.00 and GBX 742.00, respectively.

From a technical perspective, the stock price is hovering around the lower Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI of ~41.02 approaches an oversold territory.

Over the last two years, IGG’s stock price had delivered a positive return of ~17.05%, while the FTSE All-Share Financials index (benchmark sector) had produced a return of negative 0.50%, and FTSE 250 (benchmark index) had generated a return of around 1.18%. 

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

Business Outlook

The Company has achieved record revenue and profit in FY21, and it carried strong momentum in FY22 as well. The completion of the tastytrade acquisition had strengthened the Company’s growth and diversification ambitions, especially in the US markets. Moreover, IGG has a consistent dividend policy and has also improved its MSCI rating from ‘BBB' to 'A'. Meanwhile, IGG aims to target revenue growth in Core Markets+ in the range of 5-7% per year over the medium term. The High Potential Markets portfolio will continue to increase revenue ranging from 25% to 30% per annum in the medium term. Overall, the Company remained on track to deliver sustainable growth for the shareholders through the sound business model, strong cash generation and consistent dividend payments.

Considering the recently announced disposals, net revenue growth during H1 FY22, strong balance sheet, consistent dividend payments, and 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 GBX 784.00 (as on 07 February 2022 at 08:44 AM GMT), with lower-double digit upside potential based on 10.88x Price/NTM Earnings (approx.) on FY22E 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. 

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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