What information was contained in the report?
The report provided the markets with an insight into the current performance of the business, as it covered the period up until the 28th of February, which represents the third quarter of IG Group’s financial year 2022, that ends on May 31st.
The board described the third quarter of FY 2022 as constructive.
Net trading revenue from continuing operations came in at £257.20 million (IG having sold Nadex and a stake in Small Exchange earlier in the financial year).
That compared to £226.70 million of revenue in the corresponding period last year, a gain of +13%.
However, the number of first trades by new clients at the firm fell by -32% suggesting that acquiring new clients is becoming harder, now that the meme trading phenomenon has subsided.
That said IG’s active client base stands at a record 292,500 accounts, some 70,000 higher than the figure at this time last year.
In terms of revenue breakdown OTC leveraged derivatives trading (that’s CFDs and Spread Betting) delivered £219.30 million of income, up by +4.0% from last time out.
Whilst On-Exchange derivatives trading revenue came in at £31.30 million reflecting the acquisition and integration of Tastytrade in the US.
Trading in stocks and other investment products generated revenues of £6.60 million, a figure that was -54.0% lower than the Q3 FY21 tally of £14.30 million.
Did IG Group offer any forward guidance?
IG Group did offer some forward guidance and suggested that FY22 revenues should moderately exceed current market expectations.
Though somewhat disappointingly they conceded that revenue at Tastytrade might come in below expectations, as a slow down in US options trading activity means that the +25% to 30% growth rate, that had been pencilled in for the business, may now not be achievable.
Commenting on the update IG Group CEO June Felix said that:
“I’m delighted to be reporting another quarter of outstanding performance driven by a record number of clients trading in the period. Today, we have more clients and a broader range of products to trade than ever before in our history. But we aren’t stopping here – a new IG is emerging, and we’re excited by the opportunities ahead of us, building on our strengths and track record of delivery.”
What was the market’s reaction to the update?
IG Group shares have traded higher by +4.97% over the last week, though they remain down by -6.77% over a 6-month time frame, and are lower by -7.43% if we look back over a year.
Stockbrokers Shore Capital described the trading update as positive and said the group was trading on a 12 month forward PE of 9.4 times, which was towards the bottom of its historical valuation range.
They added that the long term valuation average for the stock was a forward PE ratio of 15.40 times earnings.
Shore Capital estimates that the prospective dividend yield at IG Group for FY 2023 is +6.40% and that fair value for the shares, in their eyes, is 1150p.
An implied premium or upside of some 45% to the current price of 787p per share.