Effects Of Regulatory Changes On The Performance Of IG Group Holdings Plc Stock (IGG)

Overview

IG Group Holdings plc is the United Kingdom-based company dealing in leveraged derivatives and engaged in spread betting under its name. CFD’s issued by the company helps clients to take benefits of changes in the price of assets. The company has a global presence under IG brand in countries like Europe, Africa, Asia-Pacific, the Middle East and in the United States it is operated as Nadex. IG Group was incorporated in the year 1974 with its headquarters located in London. The company’s prime customers are retail clients, business entities and institutional investors. [optin-monster-shortcode id="wxhmli4jjedneglg1trq"]

Major Product Offerings

• Contracts for difference (CFDs)
• Spread Betting (in the UK and Ireland)
• Share dealing, ISAs and SIPPs
• IG Smart Portfolios
• North American Derivatives Exchange to trade options

Key Management Team

• Mr Andy Green: Non-Executive Chairman
• Ms June Yee Felix: CEO & Executive Director
• Mr Paul Richard Mainwaring: CFO & Executive Director

Segment wise performance - 1H FY2019 (£, million)

(Source: Half Yearly Report, Company Website)

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Segment Performance Commentary

• In H1 FY19, net trading revenue reported declined significantly for almost all the geographic locations except for APAC and the EMEA ex EU regions.
• The EU segment reported a drastic decline in the net trading revenue in H1 FY19, down by 29 per cent against the corresponding period of the last year.
• The UK and ESMA region reported a decline in net trading revenue, down by 11 per cent and 17 per cent respectively when compared with the last year.
• The EMEA ex EU and APAC segments were in the positive territory with the increase in trading revenue by 18 per cent and 12 per cent respectively.
• The other operations which include Nadex and Share dealing & investments reported an increase in the trading revenue by 15 per cent and 39 per cent respectively against the last year data.

Financial Highlights - 1H FY19 (£, million)

(Source: Half Yearly Report, Company Website)

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Financial Commentary – H1 FY2019

• Net trading revenue of £251.0 million (H1 FY18: £268.4 million), showing a decline of 6 per cent with a comparison to the last year of the same period, due to lower revenue generated in the ESMA region.
• Operating expenses excluding variable remuneration of £122.1 million (H1 FY18: £117.6 million), up by 4 per cent as compared to the last year, due to continued investment in new product and platform development.
• Operating profit of £112.5 million (H1 FY18: £136.5 million), was showing a decline of 18 per cent, due to decreased revenue and increased operating costs.
• Profit for the period of £91.4 million (H1 FY18: £108.1 million), was showing a decline of 15 per cent.
• Basic EPS is 24.9 pence (H1 FY18: 29.5 pence), was showing a decline of 16 per cent.

Ratios

(Source: Thomson Reuters)

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Ratio Commentary

• Gross margin reported was 95.30 per cent in H1 FY19, reflecting an increase of 0.5 per cent when compared with the corresponding period of the last year data.
• EBITDA margin of 46.60 per cent for H1 FY19 stood considerably higher than the industry median of 36.7 per cent.
• Net margin of 35.10 per cent for H1 FY19 stood considerably higher than the industry median of 23.20 per cent.
• Return on equity stood at 11.00 per cent which was remarkably higher than the industry median of 8.2 per cent.
• At liquidity front, IG Group Holdings PLC liquidity position was significantly higher than the industry median of 1.89.
• On leverage front, the debt-equity ratio was significantly lower as compared to the industry median, reflecting the company is less levered as compared to its peers.

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Share Price Commentary

• On 25th February 2019, IG Group Holdings PLC stock closed at GBp 551.00 down by 5.74 per cent against its previous day closing price.
• Stock’s 52 weeks High and Low is GBp 956.50/GBp 517.00. At the closing price, the share was trading 42.39 per cent lower than its 52w High and 6.58 per cent higher than its 52w low.
• From the last one year, IG Group Holdings PLC share price declined significantly by 30.78 per cent.
• Stock’s average traded volume for 5 days was 1,764,717.40; 30 days - 1,396,376.50 and 90 days - 1,283,445.47. The average traded volume for 5 days was up by 26.38 per cent as compared to 30 days average traded volume.
• The company’s stock beta was 0.17, reflecting relatively lower volatility as compared to the benchmark index.
• Total outstanding market capitalisation was around £2.03 billion and a dividend yield of 8.43 per cent.

Recent News

On January 22, 2019, IG group holdings posted a decline of 18 per cent in profit and revenue. As a result of which the stock price fell by 7 per cent. The new European law majorly impacted the decrease. June Felix company’s Chief Executive is confident that the company will return to its growth momentum after FY19.

Growth Prospects and Risks Assessments

• Strong operating and financial performance to face challenges.
• The Group believes that the macro demographic and economic trends of increasing wealth and financial awareness, combined with a move towards self-direction, will continue to fuel growth in its business.
• Company’s revenue in the financial year 2019 will be lower than in 2018, reflecting the impact of the regulatory changes in the UK and EU.

Conclusion

While broad-based challenges can be seen ahead of the group, given the current trading levels which indicate the stock movement towards 52-week low with support coming from few drivers like declining revenue, increasing costs and due to the impact of regulatory changes, the market can keep a cautious approach on the IG Group Holdings stock going ahead.