IG Group impresses with bumper interim figures and plans for a tastytrade in the USA

Darren Sinden

Not only did turnover increase substantially at IG Group, profitability did as well, and the business made £231.30 million in the first 6 months of the financial year

IG Group, Europe’s largest margin trading business reported interim figures this morning that covered the 6-months to the end of November 2020.

As we might have expected those numbers made for impressive reading. Net trading revenue rose by 67% to 416.90 million versus the £249.90 million it turned over in the same period during the financial year 2020.

Not only did turnover increase substantially at IG Group profitability did as well and the business made £231.30 million of profit over those 6 months. That was a leap of 129% compared to the £101.20 million that they made in the first 6 months of the previous financial year.

That means that either IG’s clients lost more than twice as much money to the firm in the first half of 2021, as they did in 2020.

Or, that IG’s hedging strategy was considerably more efficient in the period than it has previously been.

Given that the growth in profitability is roughly twice the growth seen in turnover it is fair to assume the latter to be true, and that could mean that the increase in profit margins may not just be a one-off event, driven by higher trading volumes.

Funding and liquidity remained high as one would expect in a business that is throwing off so much cash. IG had regulatory capital resources at its disposal of £712.30 million up from £675.50 million at the end of May 2020.

Commenting on the interim results IG Group CEO June Felix said that: “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”

She added that “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”

However, the biggest surprise in the IG figures was the news that it was intending to make a substantial acquisition in the USA with the purchase of tastytrade. An online options brokerage and traders community which has 105,000 active accounts.

IG is intending to pay $1.0 billion for the business which will be made up of $300 million in cash, with the balance being funded through the issues of 61.0 million new IG Group shares. Though it’s not clear if these new shares will be placed in the market or will go to tastytrade shareholders.

The senior management at tastytrade will join the IG leadership team once the deal completes. IG Group has been advised on the transaction by Jefferies International, Barclays and Numis.

IG is effectively going to be paying $9524 per tastytrade account but it believes that this business can be scaled further in the US options market, which is estimated to contain 1.50 million retail traders. However, IG will be getting more for its money than just the brokerage business.

Founded in 2011 tastytrade’s educational platform has 900,000 registered users and its content is watched by viewers in 190 countries. The brokerage business was launched in 2017 and the group has operations in Chicago and Australia and is due to launch in Canada shortly.

For the full year to the end of December 2020, tastytrade generated revenues of US$116.20 million and profits before tax of $49.0 million. Putting the proposed acquisition by IG Group on a price to profit multiple of 20.40 times.

This is an intriguing deal and will dramatically increase IG’s US presence and income streams. Given the valuations currently placed on US fintech’s the billion-dollar price tag does not seem excessive. However, IG appears to be paying for goodwill and intangibles rather than a valuable IT stack. Retaining and working well with tastytrades founders and management will therefore be crucial to the long-term success of the deal.

That said tastytrade has also been incubating fintech’s of its own including a mobile-first options brokerage called dough, that was launched in 2019 and Quiet Foundation a data-science-driven investment advisory service launched in 2018. So there may also be some hidden gems for IG to leverage once the deal is completed.

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