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IG Group spreads out

Half-year results for the spread-betting group contained no change to medium-term targets
January 21, 2020

IG Group (IGG) is adding a hedge to its spread-betting products’ core markets. As revenues in Europe and other developed regions moderate, the FTSE 250 group has set ambitious plans to more than double sales to “significant opportunities” markets to £160m by 2022.

IC TIP: Hold at 692p

The latest evidence suggests that target is on track. In the six months to November 2019, turnover from IG’s operations in Japan, the US and so-called ‘emerging markets’ jumped 43 per cent to £40.4m, as client numbers soared more than a third. 

Most of these new customers deal in over-the-counter leveraged products. Given the recent crackdown on leverage limits in Europe – and imminent changes in Australia and Singapore – investors will want to understand the new regulatory regimes IG is now dealing with. “I’ve met with them; what they’re looking for is responsible innovation,” chief executive June Felix told us, flagging the importance of a “constant discussion” with markets like Japan.

If this division is to continue its current growth rate, those discussions cannot hit a bump. Analysts at Canaccord reckon management is underestimating the scale of the challenge, and argue an annual revenue growth rate of 5 per cent in IG’s core markets is simply unrealistic. To Ms Felix, the size and professionalised-nature of the group’s operations in Australia and Singapore give her comfort.

Despite the decline in net trading revenues at the interim stage, IG expects to return to growth this financial year. However, the group gave no guidance on trading since December, during which time the CBOE Volatility Index – normally a handy proxy for derivative trading activity – has remained subdued, despite the geopolitically explosive start to 2020. “Our clients get bored with a steady rise or decline in markets,” acknowledged Ms Felix.

Broker Numis, which has the shares on a ‘hold’ rating, expects earnings of 41.9p per share for the May year-end, rising to 44.1p in FY2021.

IG GROUP (IGG)    
ORD PRICE:692pMARKET VALUE:£ 2.56bn
TOUCH:691.6-692.4p12-MONTH HIGH:712pLOW: 467p
DIVIDEND YIELD:6.2%PE RATIO:17
NET ASSET VALUE:219pNET CASH: £297m
Half-year to 30 NovTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201825111324.912.96
201925010122.412.96
% change-0.4-10-10-
Ex-div:30 Jan   
Payment:27 Feb