A sharp drop in how much of customers' trading activity IG converts into revenue has wiped a quarter off the shares and forced a downgrade to full-year guidance.
IG Group Holdings (LSE: IGG) shares were pummelled on Friday after the spread-betting and CFD provider said third-quarter revenue fell 14% to around £240m, down from £280m a year earlier, prompting it to cut its full-year growth outlook. The stock dropped more than 26% shortly after the market opened and has now halved in value since hitting a high in June.
The slide was driven by a sharp fall in revenue retention within IG's core over-the-counter derivatives business, which slipped to roughly 70% from around 80% in recent periods, as the company pointed to 'less supportive' market conditions. With comparatives also flattered by unusually high volatility a year earlier, IG now expects full-year revenue growth of only mid-single digits, a marked step down from previous expectations.
The headline weakness masks pockets of underlying strength. Organic first trades rose more than 25% and active customer numbers climbed around 17%, while income generated from OTC customers was up 8%. IG's recently acquired US business, Underdog, delivered a standout performance, with net revenue more than doubling to about $105m heading into its seasonally crucial final quarter.
Profitability is also taking a hit from the softer trading environment: IG now expects its underlying EBITDA margin for the year to sit in the low 40% range, down from 47% last year, as revenue retention and market conditions weigh on the bottom line.
Chief executive Breon Corcoran insisted the group remains on track to meet its medium-term guidance despite the tougher quarter, pointing to robust customer growth and the strength of the Underdog acquisition. Investors, however, reacted harshly to the scale of the retention decline, and attention now turns to whether trading conditions and margins stabilise as IG heads into its final quarter of the financial year.
This report is based on IG Group Holdings’s announcement and coverage by UK Investor Magazine. Company announcements can be tracked via London Stock Exchange RNS and Investegate, and the full markets calendar is worth watching for the next update.
This article is for general information only and does not constitute investment advice or a recommendation to buy or sell any security. Photo: Marga Santoso on Unsplash.
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