IG Group Holdings PLC (LON: IGG) – Delivered record performance against all key metrics.

IG Group Holdings Plc is an FTSE 250 index listed financial services company that is a global leader in online trading. IGG was founded in 1974 and is headquartered in London, the United Kingdom. It is a provider of contracts for difference (CFDs) in many countries. CFDs are derivative contracts to take advantage of changes in an asset’s price. In terms of geographical segments, the Company operates in the UK, Europe, Australia, and the Rest of the World. The UK segment gets its revenues from CFDs, binary options and financial spread bets. The Australia segment operates in binary options and CFDs. The Europe segment also generates revenues from execution-only stockbroking, CFDs and binary options. The Rest of the World segment generates revenues from CFDS and binary options, as well as operation of regulated futures and options exchange.

On 22 September 2021, IGG would hold its Annual General Meeting.

Recent trend of dividend payments

 (Data Source: LSE Website, Research done by Kalkine Group)

The chart above demonstrates the consistent dividend payment done by IGG from FY2017 to FY2021. In FY2021, IGG paid an interim dividend of GBX 12.96 per share on 25 February 2021. The next dividend of FY2021, GBX 30.24 per share, would be paid on 21 October 2021. It has an ex-dividend date of 23 September 2021.

The present dividend yield of IGG is higher than that of Investment Banking and Brokerage Services.

Growth Prospects

• Strategic tastytrade acquisition: IGG recently acquired tastytrade, which has a leading position in the U.S. listed options and futures market. The acquisition would strengthen IGG’s global position and diversify its offerings to drive further growth.
• Acquiring high-value clients: The Company, in FY2021, capitalised on rising demand to acquire high-value clients. Going into FY2022, the Company has a much larger client base. In FY2021, total active clients rose 31% YoY, and newly onboarded clients surged 39% YoY.
• Increased technological capacity: To handle the increasing trading volumes, IGG has materially increased its technological capacity. Now its systems could handle 2x average daily trading volumes.
• ESG Initiatives: IGG has adopted Brighter Future Framework, which formalises its ESG strategy. It has also achieved lifetime carbon-neutral status, and its MSCI rating improved from ‘BBB’ to ‘A’. These initiatives and improved ratings could help IGG to acquire a larger customer base.
• Strong liquidity position: The Company maintained a strong liquidity position, with its regulatory capital resources up substantially to £860.7 million in FY2021 from £675.5 million in FY2020. This solid liquidity position could continue to support client growth.

Key Risks 

• Regulatory risk: Financial sector is largely exposed to change in the government’s policy, legislation, and capital requirement. Any failure to meet the regulatory requirements could lead to additional costs and penalties.
• Failure to advance in technology: As there are increasing trading volumes that come with growth, any failure to ramp up the technological capacity adequately could hamper IGG’s growth.
• Macro-economic uncertainties: The delta variant of Covid-19 could lead to volatility in the market. Also, Brexit and US-China tension could significantly impact the prices of financial instruments.
• Financial risk: Due to the Company’s global operations, IGG is exposed to risks due to foreign exchange rate fluctuations. It could affect the financials of the Company.
• Cybercrimes: The industry is witnessing frauds and money theft at financial institutions due to cybercrimes. It could pose a reputational risk to IGG, apart from resulting in financial losses.
  

Now we will analyse some key fundamental and shareholders statistics of IG Group Holdings PLC.

Recent Development 

Change in Director: On 22 July 2021, the Company announced that due to family reasons, Bridget Messer, Executive Director and the Group's Chief Commercial Officer, would step down from her role after the coming Annual General Meeting.

Appointment of Non-Executive Director: On 9 July 2021, the Company announced that it had appointed Susan Skerrit as a Non-Executive Director of the Company.

Acquisition of tastytrade: On 28 June 2021, the Company announced that it had acquired online brokerage and investor education platform tastytrade, Inc, effective 28 June 2021. 

Financial and Operational Highlights (for the year ended 31 May 2021 as of 22 July 2021)

(Source: LSE Website)

• The Company achieved a record performance in FY2021, with total active clients rising 31% YoY and new clients on boarded surging 39% YoY.
• This excellent performance resulted in net trading revenue increasing 31% YoY in FY2021.
• The strong performance in the top line led to profit before tax surging 52% YoY in FY2021 and adjusted profit before tax rising 61% YoY in FY2021.
• It resulted in solid liquidity positions, with regulatory capital resources up substantially to £860.7 million in FY2021 from £675.5 million in FY2020.
• The strong performance in the bottom line and the Company’s solid liquidity positions prompted the management to maintain the full-year dividend of GBX 43.2 per share.
• IGG achieved lifetime carbon-neutral status, and its MSCI rating improved from ‘BBB’ to ‘A’.

Financial Ratios (H2 FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 26 July 2021, at 7:25 AM GMT, IGG’s shares were trading at GBX 861.00, down by ~0.98% against the previous day closing price. Stock 52-week High and Low were GBX 960.00 and GBX 726.00, respectively.

On a daily chart, IGG's price is sustaining above 200-day EMA of about GBX 838.60, indicating the possibility of an upward movement. The 200-day SMA of about GBX 840.30 is also sustaining below the stock price. Hence, there could be an uptick in the stock price in the near term.

In the last year, IGG’s stock price has delivered a decent positive return of ~18.14%. However, it has underperformed both the FTSE All-Share Financials index with a return of around 37.88% and the FTSE 250 index with a return of around 47.67%. 

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

Business Outlook Scenario

IGG delivered an excellent performance in FY2021, with adjusted profit before tax rising 61% YoY. It was achieved with a net trading revenue increase of 31% YoY. Its total active clients also surged 31% YoY in FY2021. The Company exceeded expectations, and the management raised guidance, which provides further confidence for FY2022. The Company is benefitting from its strategic tastytrade acquisition, its significantly increased high-value client base, its increased technology capacity, its ESG initiatives and its strong liquidity position going into FY2022. The management strives to build stronger capabilities, helped by a solid liquidity position. The Board is confident that the Company could continue to deliver sustainable value for the shareholders.

Considering the excellent performance in FY2021, the growth prospects from the strategic acquisition, the upgraded guidance by the management, decent profitability, liquidity and improved leverage position of the business,  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 price of GBX 861.00 (as on 26 July 2021 at 7:25 AM GMT), with lower-double digit upside potential based on 14.32x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

 

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

*The dividend yield is subject to change as per the stock price movement.

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

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. Resistance level 2 is at 52 week high and if IG Group Holdings Plc attains momentum or breach it, then target price as per valuation table could be seen in the near term as per technical chart analysis.

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