IG Group LON:IGG, the FTSE250 listed, London-based online trading platform, is on the lookout for new leadership as its CEO, June Felix steps down for health reasons after five years at the helm.
The share price has been disappointing this year. The company issued a Q3 trading update in March, saying that full year revenue and profit before tax would be in line with current market expectations. “Our medium-term revenue and profit margin guidance remains unchanged,” it said at the time.IG opened the week (23rd October) at 623p, which was -20.5% behind where the share price was at the beginning of the year and -18.3% behind where it was this time last year. The company has seen its shares range between 610p and 844.5p over a 52-week period. IG Group has a market capitalisation of GBP2.4bn.
However, the share price is not the whole story with IG Group. The company has been supporting traders and spread-betters for nearly 50 years and the appetite for investing and trading has not diminished in this time. In fact – as the existence of The Armchair Trader testifies – the enthusiasm for trading is increasing, not decreasing.
Trading is still growing in popularity
Around two-in-five of the UK population currently invest in the stock market, commodities, currencies and other investments and this number is set to increase as people look for ways to supplement their income in times of suppressed wage rises and higher cost-of-living expenses. The growth prospects for IG Group remain strong, the company reported in its full-year results to end-May that it had more than double the clients it had pre-pandemic rising from around 5,000 active clients in 2019 to 25,000 in 2022. Moreover, it was earning more with revenue up 6% year-on-year to GBP1.02bn.
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But the kicker from investing ‘in’ IG Group, not only investing ‘with’ IG Group is that the company has paid out chunky dividends on a sustainable basis, with the latest dividend 45.2p up 2.3% y-o-y. Moreover, the trading platform initiated a GBP250m share buy-back programme. In total, IG Group’s capital return was GBP363.4m, when dividend payouts and share buy-backs were taken into account, a 95.2% increase y-o-y.
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The company offers access to around 19,000 markets, spread across traded equities, commodities, fixed income and options including CFDs and other leveraged-trading instruments. Offering investor education for amateur traders as well as platforms and services for sophisticated professional investors, Felix explained to The Armchair Trader how IG Group had grown exponentially during the Coronavirus pandemic and was forging a path into new markets overseas.
Earnings predominantly derived from the UK
However, IG Group still derives the bulk of its earnings from the UK. In its full-year results trading revenue was GBP322m, with Australia and Japan each coming in at around GBP100m and Singapore contributing GBP68m. Last month, in its 1Q23/24 results IG Group reported revenue of GBP249.9m, more-or-less where it was this time last year but did report a fall in revenues derived from over-the-counter products including spreads and CFDs, falling 8% y-o-y to GBP182.7m
IG Group offers better value than its peers
The company has had a tougher year, but could be moving towards a share price recovery if you believe broker, Shore Capital, who reiterated its ‘Buy’ recommendation last month, with analyst Vivek Raja saying: “trading conditions have been softer over the past few months, though the issues CMC has faced don’t really apply to IG,” with stock trading at around 7x earnings with a dividend yield of 7% and a free-cash-flow yield in the mid-teens, Raja concluded IG Group offers; “far better value than CMC.”
With the ability to trade downwards as well as up through IG Group’s platforms, investors can still be involved in the market even in a weak economy, which augurs transaction fees and revenues for the fintech.
Bridgewise rates IG Group as a ‘Hold’. The analyst said: “IG’s recently released results from 2Q23 indicate that IG is performing reasonably well and on par with its peers. We do believe, though, that macro-related market conditions will influence its performance more significantly than its individual results. As such, IG received an overall score of 67 and a ‘Hold’ recommendation.”
IG Group’s share price isn’t really reflecting the potential of the business, and it is well behind the sector with a potential notable uptick in the share price and a solid, stable dividend history with cash in the bank, the company could well be worth another look at these prices.
