Hits: 9

24 April 2020

IG Group –Trading Update

Share Price 736p

Mkt Cap £2719m

Conflict Disclosure: I Hold

 

  • Update Since the last week of February volatility has been sustained at exceptional levels. Revenue in the first 36 days of the 61 in Q4 is £173m which compares to £139.8m in the previous quarter. Around 2/3 of the way through the year the company reports £422m revenue which is c 75% of the FY estimate of £558m. A 3% reduction is expected to May 21. IG makes the point that their new clients generate revenue for “many years”. Costs  are expected no to increase by an extra £10m due to extra clients and bad debt provision. Staff bonuses will also be c £17m higher than 2019. There is also a £5m charitable donation.

 

  • Estimates If current levels of revenue continue revenue could be £632m, 22% above the £558 forecast. The £74m delta is mitigated by £32m extra cost which looks like a potential 20% beat. The greater question is what happens the following year. The existing 9% PBT fall forecast is too low given the multi-year duration of Ig Group’s new clients.

 

  • Valuation PER 15 pre upgrades that could be 20%. Yield 5.9%. CMC trades at 7.2X and yield 7.1% and Plus trades at 7.8X yielding 6.1%

 

  • Conclusion All 3 of the spreadbetters are right to own. I take the view it won’t fall off a cliff post lockdown the forecast upgrade cycle has further to run.

19 March 2020

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IG Group – Q3  Update 

Share Price 614p

Mkt Cap 2,269m

Conflict Disclosure: I Hold

  • Update Revenue of £139.8m is 29% up year on year, driven by a 31% increase in leveraged OTC product and an 11% decline in stock trading. For the 9 month period revenue is up 9% to £389.7m, which is a 3% increase in core markets and a 51% increase in significant opportunities. High levels of trading have continued into March with revenue of £52m in the first 12 days of March. Outlook is described as extraordinary.
  • Estimates The company has delivered 77% of full year to May revenue estimates in Q3 and 12 days into Q4 has delivered 87%.
  • Valuation PER 714.6, falling to 13.8X pre upgrades. Yield 7%.
  • Conclusion Good place to hide just now. With Plus trading on 7.4X and higher operational leverage their estimates can be disregarded as way too low.

21 January 2020

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IG Group – H1 Results 

Share Price 686p

Mkt Cap £2,533m

Conflict Disclosure: I Hold

  • Results Revenue was up 1% to £252m. An 11% increase in costs leads to operating profit down 11% to £100.1m and PBT down 10% to £101.2m. EPS down 10% to 22.4p. Trading revenue was down £1.1m as the prior year benefitted from 2 months prior to ESMA intervention. DPS 12.96p. Core markets revenue declined 6% while significant opportunities grew 43%. Net cash £297m. Outlook reiterates the return to revenue growth in FY20 and the increase in costs being in line with expectations, while the previous strategy of 3-5% core markets growth and extra £60m from significant markets by 2022 is also reiterated.
  • Estimates Last year the company guided to £620m revenue in 2022 at their strategy day. Consensus is for £574m revenue in 2022 so there is some forecast upside over the next 2 years but today, with profits declining 11% there is no catalyst.
  • Valuation PER 17.4X Yield 6.3%
  • Conclusion The shares are up 28% since the October strategy was outlined.  The PER is 17.4 is now becoming up with events like most stocks in the market.

5 December 2019

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IG Group – Pre Close Trading Update 

Share Price 689p

Mkt Cap £2,546m

Conflict Disclosure: I Hold

  • Update  H1 revenue is expected to be £250m which is flat on the prior year though the statement reminds us the prior year had 2 months trading included prior to the ESMA proposals coming into effect implying a like for like improvement in the other 4 months. Core market revenues £210m is 6% down, but the company suggests Q2 has been strong. Revenue from “significant opportunities was £40m, up £12m in the 6 months.
  • Estimates FY forecasts assume £497m revenues which implies no growth H2 on H1. Potential for upgrades here. At the strategy day the expectation for core markets for 2019 was guided to £415m, of which more than half has been delivered in H1. And “significant opportunities was guided to £60m of which £40m has been delivered in H1.
  • Valuation PER 17.4X Yield 6.3% from a dividend which is a 110% pay-out ratio.
  • Conclusion Significant Opportunities 2022 revenue target was guided to £160m in May and 3-5% growth in core markets revenue was guided implying £466m revenue from core markets in 2022. That is £626m revenue in 2022. Forecasts are for £574m revenue in 2022.  There should be a series of upgrades to come so while the shares are now not cheap having risen 45% since May there may be more to come as upgrades are delivered. Only Canaccord remain grumpy on this one.

19 September 2019

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IG Group  – Q1 Results 

Share Price 578p

Mkt Cap £2,137m

Conflict Disclosure: I Hold

  • Results – IG Group reports flat revenues on the prior year.  Driven by favourable markets in August and higher active client numbers. The company reports relative to the average quarter of last year as revenue declined over the year and states its performance relative to its stated targets of 3-5% core growth and £100m from significant opportunities by 2022. Core grew 9% above the average of last year and significant opportunities delivered £19.9m revenue in Q1.
  • Estimates – Australian Regulation now causes a threat to forecasts but the guidance remains unchanged. Forecasts seek PBT of £178m to May 2020 which is EPS of 39.2p
  • Valuation – PER 14.8X, Yield 7.5%. Net assets are £26m.  Currently there is no return on those assets.CMC trades at 14.1X and Plus 7.4X
  • Conclusion – There are cynics who doubt the performance of the companies targets, but this provides reassurance. Australia was 15% of revenue last year and this may come under pressure but I suspect all these companies will recover over time. 2022 forecasts are considerably lower than the companies guidance and the company trades at 11.4X the 2022 forecasts.  There may yet be upside on forecasts and in the meantime there is a useful yield.

23 July 2019

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IG Group – FY Results 

Share Price 580p

Mkt Cap £2.14bn

Conflict Disclosure: I Hold

  • Results The financial summary is quite a way down after the operating and strategic summary which is never a good look.  Trading revenue down 16% to £477m and costs down 2% to £284m, Operating profit down 31% to £192.9m and EPS down 30% to 43.1p. Dividend maintained at 43.2p. Outlook expects revenue growth in current year but in H2 as the effects of ESMA only came into effect in Q1 19.
  • Numbers At the strategy update the company said it expected 3-5% core market revenue growth and £160m from other significant opportunities by FY 22, which is £60m in 2019. Adding these numbers to the £477m delivered gives £620m revenue for 2022, a 30% uplift. Forecasts for 2021 are for £540m revenue which looks conservative.
  • Valuation 2020 PER is 14.2 and yield 5.7%
  • Conclusion With 66% of revenues from professional clients this stock looks well placed to start a new upgrade cycle. The shares are up 17% since the announcement of the new strategy on 22 May so until the next upgrade may tread water.

22 May 2019

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IG Group – Pre Close Update 

Share Price 595p

Mkt Cap £675m

Conflict Disclosure : No holding

  • Update Revenue in Q4 was subdued which has picked up in May. FY revenue is £475m and PBT for the year expected to be £190m (FY E £198m).  The subdued conditions were driven by ESMA OTC leverage revenues down 26%,. The 43p dividend will be maintained which is just covered
  • Estimates While the year to March 19 is a little behind expectations it is possible that the 8% PBT increase forecast for the current year could prove to be light
  • Valuation PER 10X yield 9.1%. Plus 500 trades on 5X and yields 15%.
  • Conclusion This may be the eye of the needle. Brave investors may go to the strategy presentation at 4pm today to gain the necessary confidence as to whether this is the bottom. The shares were 893p a year ago. It wouldn’t surprise me if they were back there a year from now.

22 January 2019

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IG Group – H1 Results 

Share Price 641p

Mkt Cap £2.36bn

  • Results Net trading revenue down 6% to £251m. Operating profit down 18% to £112m. EPS down 16% to 24.9p. The outlook reiterates that revenue is expected to be down in FY 19 due to the ESMA effects and the exceptional  H2 18 boosted by crypto currencies. Operating costs are budgeted to remain flat at £290m. Growth is expected after May 2019. Dividends will remain stable at 43.2p
  • Estimates Look for EPS to decline 18% for the year to May 19. Given the comparators for H2 will be tougher than the H1 where EPS was down 16% this could still be quite full
  • Valuation PER 12.5X and yield 6.33%.
  • Conclusion  These companies are rather like the tobacco companies. UK and EU declining with growth from Asia Pacific regions. The balance sheet is strong and the ROE is in the 22-28% region. As a value investment we might therefore value the business at 2.5-3.0X book value. That is 570p to 680p per share. The shares are in the middle of that range and getting interesting.

4 December 2018

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IG Group – Pre close update 

Share Price 608p

Mkt Cap £2.24bn

  • Update Revenue in H1 is 6% lower than last year. The company confirms that since the regulatory changes in Europe group revenue has been 10% lower which is 20% lower within the ESMA regulated territory and 9% increase in the other regions.
  • Estimates Market forecasts appear to anticipate a 10% in group revenue for the year to May 19 do this looks in line with expectations
  • Valuation PER 11.7X yield 6.9%. Plus 500 trades at a PER of 8.3X and yields 10% while CMC markets trades at a PER of 9.6 and yields 6.5%
  • Conclusion It appears these companies have guided the market broadly accurately which is quite an achievement given the lack of visibility over the customers response to lower leverage limits.  The shares are very cheap and the sector may have a relief rally

23 May 2018

IG Group – Trading Update  

Share Price 886p

Mkt Cap £3.26bn

·         Update FY revenue is expected to be £565m. Expenses are expected to be £290m. Profeesional categorised clients would have accounted for 10% of revenue. The company expects revenue to be lower in 2019 following the regulatory changes. In the last quarter professional clients contributed 35% of revenue. Using a well worn strategy used by the fund managers to point at the platforms following the FCA asset manager review called “He’s over there” the company point out that unregulated operators are the most likely victims of the regulatory changes.

·         Estimates The full year revenue is c 1% ahead of forecasts and PBT is in line.  The market is expecting a 5% reduction in turnover in the year just starting.

·         Valuation  PER for May 18 is 17.5X and yield 4.3%. Plus 500 PER to Dec 18 is 10.2 and yield 6%.  Take your pick.

·         Conclusion My 20 year old son wanted to short Tesla but was put off by the high leverage which risked him being stopped out on a blue day. Lower leverage could well broaden the market size for these companies.