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FTSE 100 higher ahead of Fed but IG hit by subdued trading post-Brexit

Discussion in 'Market News' started by Lily, Sep 20, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Company says clients saw limited trading opportunities after EU vote

    Subdued stock markets following the Brexit vote hit UK revenues at online trading group IG, but following the news its own shares are anything but subdued.

    They have fallen more than 3% to 897p as it reported that its revenues from UK and Ireland fell by 1.8% to £55.4m in the first quarter. But Europe rose 13% and overall revenues rose 5.1% to £111.4m. It said:

    Financial markets through July and August became increasingly subdued and presented limited trading opportunities for both current and new clients.

    IG reported first quarter revenues of £111.4m, 7% below our estimate of £120.0m where our revenue forecasts for this year were materially ahead of consensus. The quarter was characterised by an unusually divergent trend in customer numbers, revenue per client and performance by geography... We are reducing our revenue estimate for this year by 4% to £500.0m (which is in line with current consensus) from £518.8m which takes our earnings per share forecast to 47.0p from 50.5p... The key IG message remains enhanced growth driven by digital marketing, superior IT. The substantial, ongoing customer growth is a good guide to long-term shareholder value creation of the group’s growth strategy. IG is currently being valued at 19.7 times earnings.

    The main reason for our sell recommendation is valuation. With independent estimates of underlying market growth at 7-8% (albeit with some short term volatility), combined with periodic investment in both the trading platform and digital marketing activities, we think that a 12 month forward PE multiple of 15 times adequately captures IG’s prospects. Therefore, ahead updating the model, our last published fair value of 715p remains too far below the current price for us to consider moderating our sell stance on this well-managed group.

    We see no chance of a production freeze agreement materialising. If a deal nonetheless should materialise it would be a conditional deal where Iran, Libya, Nigeria and Venezuela are allowed to lift their production to 4.0 mb/d, 1.6 mb/d, 2.0 mb/d and 2.4 mb/d respectively. That would place an OPEC production “freeze cap” at about 36.2 mb/d versus an August production of 33.7 mb/d. Not much of a freeze in our view.

    A slight beat at the pretax profit level (UK, Poland) and encouraging noises regarding the short-term progress in the Transformation programme. We do not expect consensus to change significantly today and we remain positive on the shares long term.

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