IG Group shares down 2% after posting record 1H results, tastytrade acquisition
UK online trading brokerage IG Group (LON:IGG) had a very busy news morning. In addition to announcing the $1 billion acquisition of US online broker tastytrade, IG also released its latest financial results showing record revenues and profits, surpassing even the company’s very strong November 2019 to May 2020 period.
IG’s fiscal 1H-2021 results (covering the six month period to November 30, 2020) saw the company bring in £416.9 million in revenue – topping the £399 million IG Group saw in 2H-2020 – and profits of £187.1 million, also better than the company’s previous best of £158 million seen over the previous six-month period.
However the market did not react positively to the combined acquisition-and-results news, with IG shares trading down by about 2% in early London Stock Exchange trading – possibly in reaction to the size of the tastytrade deal which included a ot of newly-issued IG shares. IG paid about 10x revenues and 20x profits for tastytrade.
While IG had already reported the revenue figure in a previous trading update, the net profit figure was very strong, indicating that the “trading party” that began at the outset of the COVID-19 crisis in the first half of calendar 2020 did indeed continue into the second half of the year. IG also seemed to avoid the clients-made-money-against-us problem that troubled rival Plus500 over the same period, which saw revenues and profits down in the last quarter of 2020 despite trading volumes remaining strong.
IG stated that it has seen a sustained step-change in client numbers and client trading across its leveraged and non-leveraged product sets, aided by levels of financial market volatility remaining elevated compared to historical averages. The company saw a record 238,600 clients trading which included 64,000 new clients onboarded (H1 FY20: 28,800) during the first half of the financial year. Of these, 69% were OTC leveraged clients. IG said its new clients exhibit similar characteristics to its previous client base and encouragingly, retention rates are comparable to historical averages.
The increased client base also meant increased client funds, which rose to a record £2.5 billion as at November 20 (31 May 2020: £2.0 billion), which the company said will drive enduring revenues for the Group over the medium-term.
As far a geographies go, IG remained a very UK and Europe-centric firm in 1H-2021, with 61.2% of its Core Markets revenues coming from UK-EU clients, virtually identical to 1H-2020. However the company did continue to see nice growth in all geo areas, including Australia (up 67% YoY), Singapore (up 68%), and EMEA non-EU (mostly MENA, up 33%).
June Felix, Chief Executive of IG, commented:
“I am delighted to announce an outstanding performance over the first six months of our financial year. We delivered record revenue and profit, made excellent progress against our strategic growth objectives and continued to build a more sustainable and diversified global business.
Demand for our products remained high, benefitting from favourable trading conditions, although it is the quality of our technology and the dedication of our people, throughout the global pandemic, that has enabled us to convert this demand into a step change in the size of our active client base.
We empower our clients as they seek opportunities to trade, providing them with a superior platform, innovative products and exceptional service to deliver an excellent trading experience. We are rewarded by their loyalty.
Today we also share details of our proposed acquisition of tastytrade. This is an incredibly exciting, landmark deal that is fully aligned to the growth strategy we set out in May 2019. It will see IG diversify into the high growth market of US exchange traded options and futures, a market with an estimated 1.5 million retail traders, and we are confident that this transaction will materially expand our US presence.
As we enter the second half of the year I believe that we are better positioned than ever before to deliver sustainable value.”
IG’s full 1H-2021 results release can be seen here.