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IG Group (LON:IGG) report: Solid growth from core and fledgling markets

Contributed by Daniel Stewart & Company

By Daniel Stewart & Co

- IG Group has reported solid revenue upside in its core markets, with encouraging levels of active customer sign-ups and European/Australian markets growth.

- IG has seen an 11% YoY growth in group revenue (+10% CC) for the three-months to end-February 2010, with the UK market (54% of revenue) showing upside of 18%.

- Elsewhere, the emerging European markets (18% of revenue) continue to show strong growth, with revenue up by 52% (+56% CC), with an increase across all regions and the bulk of growth driven by Germany and France.

- Australia has benefited from strong revenue growth (+34% CC) and a headwind on currency exchange (revenue +67% reported).

- As expected, the Japanese market remains very tough (revenue -54%), although IG has stated that it is seeing volumes improving into 2010.

- There is no significant positive movement on the group’s ability to materially penetrate the US and South African markets, with IG still waiting on regulatory approval from Nadex in the US and the South African Reserve Bank. Higher marketing expenses and acquisitions remain on hold until these issues are resolved.

- There is no guidance on FY10E at this stage of the year and we retain forecasts (upgraded in January post-H1 results), with the group announcing it is seeing ‘strong account opening’ and is ‘well positioned for further growth’.

- We expect the share price to continue to track around our unchanged 425p price target in the near-term and retain our Hold recommendation, supported by a reasonable but undemanding valuation (14.7x.P/E FY10E, 8.5x EV/EBITDA) and dividend yield of 4.1%.