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Unsurprisingly trading has been a bit weak in Q3 due to low volatility. A quick look at the VIX tells us we can stop worrying about that. Looks like a gift at this level especially when you factor in the cash pile and buyback.
"tastytrade total revenue for Q3 FY23 YTD was £122.8 million up 50% (Q3 FY22 YTD: £81.8 million) or 36% on a pro forma basis. On a USD pro forma basis, tastytrade revenue was up 19%, with the benefit of interest income offsetting a softer trading revenue performance."
"US interest income was £32.7 million for Q3 YTD (Q3 FY22 YTD: £0.6 million)"
"Within exchange traded derivatives, tastytrade total revenue for the quarter of £44.9 million was up 57%, driven by a significant increase in interest income. On a USD basis, the growth rate was 42%"
They never spell it out but it is now apparent that IG paid 33% of its capitalisation for a "corner shop" business that has struggled up to ~£120m p.a. non-interest revenue, aided by a depreciating £. Profitability, or otherwise, is never mentioned so I have to assume we can fear the worst.
Cost control has been ignored in the "surge for growth" - which overall is non-existent. Shareholders would be better off if the directors were paid to just sit on their hands.
A basically solid business in desperate need of some sound leadership.
AceofClubs
I don’t understand the negativity here. This is an easy buy, and I added significantly to my holding this morning.
Great revenues, great yield, huge growth potential. I don’t have a great opinion of June, but I can’t see that she’s doing a terrible job: the share price is not a reflection of the value here IMO
Time for June to buy a big chunk on the open market. I repurchased a small tranche yesterday. Obviously would have been more sensible to wait. Even under her leadership, the business is sound, but that is not because of her, but in spite of her, IMO. Will wait to see 6's before taking another small tranche. Just a bit frustrated that this once fine cash machine is under-performing. Tick tock June! GLA.
The comments here explain all and are well said. The news today - finally we get the truth we have long suspected - should be the final nail in the coffin of these miscreants. A management slearout and focus on service and truthful reporting can only come from a new BoD and senior executives.
The comments here explain all and are well said. The news today - finally we get the truth we have long suspected - should be the final nail in the coffin of these miscreants. A management slearout and focus on service and truthful reporting can only come from a new BoD and senior executives.
June Felix’s leadership has destroyed the multiple on this company. A multiple that used to be 12x prior to her is now 8x.
Hargreaves Lansdown in recent announcement half year to Dec 2022 referred to Net interest earned on cash held in investment accounts increased form 11.3m to 121.6m. IG for half year to 30 Nov 2022 referred to Net interest income on client balances increasing from £0.4 m to £24.2m. With UK Bank of England interest rates increased in Dec from 3% to 4% in February, this should provide further interest income to IG and Hargreaves Lansdown. Would really like a special dividend or hike in current dividend from IG given the extra cash they have from ongoing buy back.
I agree, the lack of transparent reporting on Tasty Trade’s performance is very telling. But it’s not just Tasty Trade, it’s the general quality of all disclosures that seem to have gone backwards since the departure of Peter Heatherington and Kieran McKinney. The business appears to have lost its way under the new management and this is now reflected in the now significantly reduced multiple the business now commands.
Shareholders have received no benefit from the surge in new and and active customers the pandemic delivered. The share price has stagnated and the dividend has remained unchanged in five years. In the meantime, the management have been handsomely rewarded, staff remuneration has explored higher and shareholder funds gifted out to charities so the management can feel smug. Shareholders have been completely neglected and taken for mugs.
Best to wait for June Felix’s departure.
* aid=paid.
Regardless of shorter term factors, I don't think the market understands what a free cash flow monster this stock is. Currently yielding 5.5%, AND buying back 6% of mkt cap pa - so returning capital of 11.5% pa to investors, all aid for out of FCF being generated by the business. When the market properly appreciates this, expect £10 to be reached quite quickly.
Agree that June Felix should admit she made a mistake. That might expediate her exit, so she's not going to do it. I think the big money is holding off buying here because they think she'll make another big mistake. A CEO of a company like this one should know the rules around the risk of a billion dollar acquisition. If it succeeds enjoy the fruits. If it fails, accept the blame and step aside.
Good analysis guys and I agree with your points.
What strikes me is why cannot IG give proper figures for Tasty in local currency regards revenue, profit and costs etc after all it is a US business and does all of its business in $. Having to do a bit of guesswork and estimation to find to truth is not great. I may be cynical in thinking if those numbers were great they would be shouting form them from the rooftops.
When f/x conversions go against you the results can be horrible and this is now an embedded risk. As said interest income is welcome but that was not in the plan.
Hi AceofClubs, good summary and I agree with your final two points.
However, I think TT is even worse than you say (8% PF constant currency growth). I have it at negative 16% - my estimate, but based on the company`s statements and publically available info on X-rates. As follows:
- IG reported TT revenue of 52.8 million pounds H1 22 - 5 months only
- The average USD/GBP X-rate for the 6 months was $1,37
- Therefore H1 22 TT Revenue in USD can be estimated as 52,8 * 6/5 * 1,39 = $86,8 million
IG now report TT revenue of 61,2 million pounds H1 23
- the average USD/GBP X-rate for the 6 months was $1,19
- Therefore the H1 23 TT Revenue in USD can be estimated as 61,2 * 1,19 = $72,8 million
That represents and estimated drop in proforma TT USD Trading Revenue of around 16%. Actually a bit better than I was expecting, but clearly the TT acquisition is not living up to the Board`s expectations.
I also wonder for how long IG can earn significant amounts of interest on client money`s without starting to pay interest to clients for the cash balances they hold with IG - doesn`t look sustainable long term to me,
I`m long and still think this is cheap, but we need to exercise critical judgement. Good luck to all,
Yep. If June had admitted that TT was a work in progress and not delivering as hoped at this stage - it would be too much to ask for an acknowledgement that she paid too much for the acquisition in the first place - then I would be more forgiving. Everyone makes mistakes and corporate decisions go wrong all the time. It would have been brave, but I personally would respect that and would be more inclined to support her, if she also outlined plans for getting it into shape. The danger, as I see it, is that TT continues to be a financial drag on the overall business (I am inclined to agree with you that it may indeed be loss making right now). If this continues, then it will hurt the company. Plenty of examples in corporate history where poor acquisitions have had long term damaging consequences for a business that was previously healthy and highly cash generative. But perhaps I am being too harsh. Still weighing up whether I want to return here. It is a decision that I am struggling with to be honest. Need more time to review the RNS and reflect more generally. GLA.
Highlights:
Net trading revenue increased 5% to £494.9 million
Net interest income of £24.2 million (H1 FY22: £(0.4) million)
Active clients reduced to 312,000 (H1 FY22: 320,400)
New clients acquired reduced to 37,500 (H1 FY22: 53,600)
Total operating costs increased 25% to £279.9 million (H1 FY22: £223.3 million)
Profit before tax decreased by 2% to £240.5 million
Profit before tax: margins of 46.3% (H1 FY22: 52.0%)
EPS was 45.8 pence (H1 FY22: 48.1 pence)
Bought back £114.1 million shares in the half under the £150 million share buyback scheme
Extending the share buyback by £50 million, to a total of £200 million
Increased the interim cash dividend to 13.26 pence per share (H1 FY22: 12.96 pence per share)
Finally, the company we wish she'd never heard of: On a constant currency basis, pro forma tastytrade total revenue growth was 8%. It is never mentioned, but I have a suspicion that tastytrade is loss-making.
Sometimes a bit of humility means the reality can be objectively assessed.
AceofClubs
Looks steady as she goes. Disappointing costs up 25% ! has completely wiped out and more the 26 million interest gain which was a bonus anyway and cannot be relied upon. Interim dividend increased by 2.1% to 13.26p which albeit miserly is something.
TT earning a lot on the back of interest rate rises. It wasn't the plan when they bought it, but I'll take it. It shouldn't let June Felix off the hook though.
Agree on the costs. Unless the spend is Capital spend on upgrading IT systems, but I don't think that's the case. If it was, it would have gone on the balance sheet rather than the spend. I think this is still very under priced, so I'm glad they buying back, but also agree it is too slow. Fire JF and you'll see the share price soar.
A bit 'meh' IMO. Agree with you that they really should be getting costs down and also underwhelmed with the buy back initiative as well. TT is panning out how some of us feared it would (namely a poor acquisition for the cost of it). The analyst presentation will be interesting. Not sure to be honest. Not a disaster by any means, but this has always been a terrific cash machine and IMO June has not taken the business forward since taking over the reigns of the founder. Need to reflect a bit more. GLA.
Well that was pretty much as expected, positive operating performance. Going forward they need to manage costs more tightly, it shouldn`t take more employees to serve fewer customers and especially when they are investing heavily in IT and systems.
The 50 million extension to the buyback programme is underwhelming to say the least - as a shareholder I see no reason for them to sit on 500 million of excess capital and would rather have some of it in my own account! I am sure they will be pressed on this at the presentation.
Lets see what the market thinks, but I suspect a blue open and then depends on how they handle the analysts presentation. TT is going backwards on client trading revenue, saved by interest income and FX gains, as I anticipaed.
I've been here longer than I care to remember. The dividend has been flat for 5 years barring a penny extra last year!
I think the share price performance since June took over has not been good enough, thankfully I also invested in Plus500 in 2017 at around 430p back then and this was around 500p after the huge December 2016 fall on FCA regulations.
I hope the update is positive but having been used to disappointment I will not be surprised if isn't and I feel 720p is more likely to be seen than 920p any time soon.
Agreed. This is far from the worst company when it comes to self-serving actions, so not in itself a red line for me. A 25p special and keep the remaining cash on the balance sheet for any emergencies or acquisitions would be ideal IMO, but as you say, not on the cards. See you all tomorrow after the RNS!
LWHL, agree with you re buybacks. 500 million of excess capital would give a juicy 1 pound per share Special Divi and no way would the share price drop by anything like that amount if they did it. Unfortunately, they have stated that, if they get to the point of returning surplus cash, buybacks is the preferred route so as small shareholders we just have to suck it up, or invest elsewhere.
I would rather they kept the extra cash in reserve (dividend as it stands is already sufficient IMO), rather than announce further buy backs. If the numbers are at the top end, or ahead of expectations, with forward guidance equally positive, then a special dividend would be sensible as an alternative. I am not against buy backs as a rule, but look at the weak SP performance during the recent buy back period - better value for shareholders can be found without them IMO. But they are often a tool used for (artificially?) boosting EPS....which almost always translates into big remuneration uplifts for the BOD. Which a cynic might suggest is the sole reason buy backs are launched. Anyway, looking forward to the update tomorrow as well. Ready to buy back in, if the news is satisfactory. FWIW, I think Tourist has probably got a good feel for things here, but let's see. Especially of interest to me is the TT update and forward guidance. GLA.
Thanks for sharing tourist
Very interesting post, I’ve been awaiting these results patiently and ama looking forward to reading them in the morning