- Securities Trust of Scotland slams governance, price and strategy
- Investor has made 91.5 per cent return on IG in less than five years
A former institutional investor in IG Group (IGG) has described the recent takeover of US options and futures brokerage tastytrade as a “questionable allocation decision” in the wake of its decision to sell out of the spread-betting platform.
Securities Trust of Scotland (STS), which sold its stake in IG in February after banking a 91.5 per cent gain in a little over four years, this week informed its holders it had been unhappy with governance decisions involved in the deal, as well as the $1bn (£733m) price paid.
Given the transaction was partly funded through the issue of 61m new shares, the trust’s managers believe shareholders should have been given a vote. Under UK listing rules, IG’s bid for tastytrade was deemed a ‘Class 2 transaction’, meaning a shareholder vote was not required by law.
In its statement, STS said it would have preferred management to pay a special dividend or buy back shares “to the benefit of existing shareholders”.
The trust, which has been managed by Troy Asset Management’s James Harries and Tomasz Boniek since November, said it fears the purchase “may turn out to be the wrong asset, bought at the wrong price, at the wrong time” and that it had not been persuaded otherwise following engagement with IG’s management and chairman.
“We think there is a reasonable risk that the value of the acquired asset may be written down in the coming years,” the fund managers added in a monthly update to clients. IG declined to comment on the remarks.
Investors’ Chronicle understands that STS was alone among large institutional investors in expressing its disquiet about the purchase of tastytrade, despite the deal being priced at more than eight times last year’s sales.
After falling sharply immediately after the deal was announced in January, IG's shares have recovered much of their ground as frenzied retail investor activity has continued. IG expects the acquisition will be accretive to earnings per share – albeit by low single digits and on an adjusted basis – in the first full year post-completion.
Earlier this month, IG reported an 11 per cent rise in revenues between its November and February quarters, as sustained levels of customer trading activity continued into early 2021. Although client acquisition levels are likely to face tough year-on-year comparisons in the coming months, they have remained high by historical standards.
Save for its comments on the tastytrade deal, STS appears to remain bullish on IG’s prospects, whose “dominant market share and resultant tight dealing spreads [confers] a sustainable competitive advantage”.
Although we agree that the acquisition has come at a high price, IG’s global focus and exposure to structural shifts in investing habits look more than likely to prompt upgrades to consensus earnings forecasts of 95p a share for the 12 months to 31 May, and 66p in FY2022. Speculative buy at 859p.
Last IC View: Buy, 894p, 21 Jan 2020
