IG Group Holdings

[TIPIT]

IG Group's shareprice has thanks to the FCA announcement sunk nearly 40%. I bought in a few as I have an original holding.

Looks like an overcooked market reaction, and I suspect there will be some pushback by buyers.

IG have released a fairly steady as she goes RNS in response.

May be worth a look for those wishing to average down or top up!

[simoan]

IG Group's shareprice has thanks to the FCA announcement sunk nearly 40%. I bought in a few as I have an original holding.

Looks like an overcooked market reaction, and I suspect there will be some pushback by buyers.

IG have released a fairly steady as she goes RNS in response.

May be worth a look for those wishing to average down or top up!

To be honest, it's very difficult to tell if the market has overreacted and the RNS from IG was non-committal and not re-assuring about the potential effect on profits, which as a shareholder is the most important thing. Checking through the last results announcement, the CFD products (or binaries) which are being targeted by the FCA generated only 11% of total revenue and some of that revenue was from outside the UK, so the market is possibly expecting other countries to follow suit at the very least. Of course, it is not clear from the results how profitable the CFD business is, however IG does proclaim itself as the worlds largest CFD provider.

I think long-term this is possibly a good thing for IG but in the short-term (up to March 2017 at least) there will be a lot of uncertainty, and we all know the market doesn't like that. It's worth noting that 40% of the daily volume was a single seller (Cantillon).

All the best, Si

[Asagi]

IG is the best at what it does. It is the proverbial 800 pound gorilla.

The question is to what extent will the proposed changes undermine its business model?

Today's IG statement:
http://www.investegate.co.uk/ig-group-h ... 04390838R/

The Company notes, however, that the FCA's proposals do not appear to directly apply to firms operating from outside the UK offering CFDs and binaries to clients in the UK on a cross-border services passport from another EU member state.

if EU ex-UK firms can offer lower margin on CFDs, bonuses etc. IG know that this will see them lose competitive position. The outcome for the consumer may be the same.

It seems that the real problem here is a lack of consumer education over the double-edged nature of leveraged securities trading. But the result of any changes that move in the direction suggested by the FCA will make IG less profitable, I'm sure.

Asagi (no position)

[Lootman]

It seems that the real problem here is a lack of consumer education over the double-edged nature of leveraged securities trading. But the result of any changes that move in the direction suggested by the FCA will make IG less profitable, I'm sure.

If there were better consumer education about derivatives then the market that IG is in might vanish. The market in these "packaged" derivative products in the UK consists of an expensive opaque wrapper around the basic building blocks of any derivative product - options and futures.

I submit that if you understand options and futures then you'd have no need for complex second-order products like spread bets, CFDs and covered warrants. But brokers and dealers love to sell these products to you because there is a big fat haircut on them, and because they can hedge them quite cheaply, using options and futures of course.

Compare that to the US where small investors routinely trade options and futures directly, including more advanced strategies like collars, spreads, straddles and strangles. But there is no market in the US for CFDs, covered warrants and spread betting (although the latter is illegal in the US as it is considered gambling, which is a fair assessment).

So I think IG might be damned either way. I have a position in it mostly because it is a niche business and don't plan to sell it - it's a tiny position and can't materially affect the overall account value anyway. But I agree the prognosis might not be great.

[simoan]

IG Group's shareprice has thanks to the FCA announcement sunk nearly 40%. I bought in a few as I have an original holding.

Looks like an overcooked market reaction, and I suspect there will be some pushback by buyers.

I think it's worth noting that the joint company broker Numis issued some new estimates yesterday. Numis has been a joint broker for IG for several years now, and so I expect them to be pretty close to the company and have a good understanding of the potential effect on earnings of the FCA regulatory changes.

I assume any proposed FCA changes will not affect revenue enough in this year's results because they didn't downgrade for 2017, however they did downgrade for 2018 to EPS of 28.9p which is a 38% cut to their previous forecast, which still leaves it on a PER of ~17 for 2018 and with an uncovered dividend. If the EPS is going to decline by 38% than it doesn't seem that the share price collapse has been overdone.

The only crumb of comfort is that they seem to think the company has the cashflow and balance sheet strength to hold the dividend. I'm not sure that is guaranteed for 2018 because the company's stated dividend policy is for a 70% dividend payout, so I guess there could be a dividend cut in 2018 to something around 20p, which would leave the forecast yield at 4% - still not bad, unless you believe interest rates will be much higher by the middle of 2018!?

I think we could use a steer here from the company and hope we get some news before the results announcement on January 24th, however I guess there's not a lot they can do until March 2017 at the earliest when the FCA make a final decision. I have held on for now (not bought or sold) and based on the 2018 EPS forecast from Numis I'm more inclined to sell than buy more at this point. If the current price is such a bargain it would be nice to see the management helping themselves to an early Xmas present ! I believe the IGG management are sound and so this would be a positive sign at which point I'd seriously consider following them.

Of course, there could yet be further bad news caused by an anti-CFD domino effect in other countries following on from the UK on Wednesday and the Germans yesterday.

Just a few thoughts...
All the best, Si

[jackdaww]

IG Group's shareprice has thanks to the FCA announcement sunk nearly 40%. I bought in a few as I have an original holding.

Looks like an overcooked market reaction, and I suspect there will be some pushback by buyers.

If the current price is such a bargain it would be nice to see the management helping themselves to an early Xmas present ! I believe the IGG management are sound and so this would be a positive sign at which point I'd seriously consider following them.

All the best, Si

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yes , the directors should be filling their boots if the price is right .

[BobGe]

"FCA holds secret roundtable with Forex and CFD brokers on leverage and bonus issues" – LeapRate Exclusive

http://www.leaprate.com/2017/02/fca-hol ... us-issues/