The next focusIR Investor Webinar takes places on 14th May with guest speakers from Blue Whale Growth Fund, Taseko Mines, Kavango Resources and CQS Natural Resources fund. Please register here.
Bit late to Q3's trading update party, but sharing my take anyway!
Revenue was clearly disappointing, especially given FX and interest rate tailwinds.
But on the flipside, there were temporary headwinds that shouldn't affect future quarters:
- December's World Cup knockout rounds involved US, Japan, Aus, UK and Europe, all major IGG markets. Some IGG punters will have partially switched to betting on the fubba, continuing in that vein over the xmas bank holidays, before hopefully returning to financial markets trading in January. Hence why December was a stinker.
- Q3 2022/23 had one fewer Wall Street trading day (60 days) compared to Q3 2021/22 (61), and three fewer than Q2 2022/23 (63).
The last trading update paragraph signposts, to me, a share buy back extension or special dividend later in the year:
"We continue to recognise significant headroom above the minimum capital requirement and the Board has
kept the capital allocation framework under continual review".
And the divi is covered 2+ times by profits, demonstrating scope to continue increasing in the medium term at their intended modest rate.
So FWIW, I'm a buyer at these levels and think June's strategic calls have actually been sound. She targeted the US and Japan as growth markets - to be fair it's difficult to think of larger, alternative growth markets in the world for IG, with accessible regulatory frameworks. So to keep IG progressing and growing for shareholders, she had to have a pop there.
It is fair to say TT needs to pull its finger out to address reduced trader numbers/activity from previous peaks, clearly a concern. Hopefully their new marketing campaign strikes a chord with punters, and they finally make it to Canada by the end of 2023. Although Canada timescales come with a pinch of salt, with ongoing regulatory delays and risks there.
Good luck all.
SBC
Excellent summary, DevonLad, I concur with all your sentiments.
Six weeks since the accounting bombshell, the equivalent prior year accounts publication date (25 Nov) is also disappearing in the rear-view mirror.
2021/22's audited offering is needed pronto to help us understand the extent of management's accounting shenanigans and assess whether there is remaining potential for a profitable (and honest!) enterprise in the year's ahead.
Is it a case of the longer it takes to conclude the audit, the uglier things may be? Here's (naively?) hoping not...!
SBC
Hi Tank!
The investor presentation feels a while ago, at the time I don't think they were intending to materially change the LTIP from that explained in August's fundraise RNS.
The recent accounting issues clearly add to shareholders' sense of injustice . Might management suffer a guilty conscience attack for having lured, with an overstated EBITDA, investors to the fundraise, and reduce the LTIP accordingly? Not holding my breath, but they definitely should!
Hopefully they get accounts finalised ASAP that give a true and fair view - at least then investors can take an informed view on the company, either way.
More buys than usual today - possibly a tenuous chink of light in the darkness?
SBK
Agree with all the sentiments here about management's upcoming underserved LTIP bonanza.
It'll probably be a futile protest, but here are two questions I've formally submitted to September's Retail Investor Presentation (admittedly post- wine, hope I've managed to remain objective):
"Retail shareholders like me have been diluted by the August fundraise, while already nursing heavy capital losses since the IPO.
In this context, the recently-clarified LTIP implications are clearly an insult to shareholders. While management has worked hard to increase adjusted EBITDA, this is an easily manipulated figure. Morally, management should not be handsomely rewarded for delivering significant capital losses for their shareholders.
In a recent RNS, MJ Hudson publicised research by Progressive Equity Research. Were the dilutive implications of the LTIP factored into these projected earnings per share figures? If not, to knowingly direct investors to overstated figures would be deceitful management conduct.
To restore MJ Hudson's integrity, good name and trust, will management please consider urgently revising the LTIP, to delay the vesting awards and ensure staff are only handsomely rewarded when shareholders also receive a return on their investment?"
Fingers crossed for a positive update in the presentation, but not particularly expecting one.
SBK
It's a fair criticism of the SP performance; a share buyback plus more regular comms with the market would both help IMO.
Operationally, the company must be excelling, generating record revenues/earnings per share, which management deserve some credit for, IMO.
Jury's still out on TT - for me, there's a strong logic to diversifying into the massive US market, in a way that maintains profitable growth. For every 0.25% increase in the Fed funds rate, TT's annual profits increase by c.$4m due to interest earned on client deposits. With the rate increasing 1.5% in recent months, that equates to $24m additional annual profits (mostly to be seen from FY22/23) . And we all know more interest rate rises are on the way. Hopefully they should get approval to expand into Canada later this year too. Those are potentially two big bull points that could trigger a SP re-rating, along with record results (including maybe £1bn revenue?) on 21 July.
Here's blooming-well hoping so, anyway!
SBC
As a cautionary note, H1 net income was just £126.7m, pro rata that's near the bottom of the £250m-£280m range.
So just to get to the upper end, theyneeded a significant uptick in volatility/ trading activity in H2.
I still think it perfectly possible we will be within the range, but hoping for more...
My hopes and dreams are similar - after the Q4 volatility (and were fx rates more favourable for earnings abroad?), less than £280m net opex income would be underwhelming.
£285m seems a reasonable estimate — be interesting to find out on Friday, and whether they're managing to control employee and other costs, with inflation running amok.
SBC
CSB - I think you've mis-interpreted Beth's very helpul and well-explained point about the FCA and Gambling Commission's differing areas of regulatory oversight.
It seems clear to me that Beth isn't saying "don't invest", she is just acknowledging a legitimate risk.
Beth - Thanks for the info which I for one found helpful...
SBC
Yes the CFO voluntarily snaffling a few is usually a positive indicator.
Hoping for sensational trading figures tomorrow (obviously) - could Q3 revenue exceed the previous quarterly record of £259m?
There's certainly a chance it might.
For Tastytrade, Q3 cable exchange rate has been more favourable than in the first half, potentially benefitting the headline TT growth rate.
It'd also be delightful to get an update on capital resource plans, like a new dividend policy and how they plan to invest the Nadex/Small Exchange bonanza, but knowing IGG, they may be silent on that until the year-end report.
Lastly, fingers crossed we haven't been caught out with any unhedged losses in the extreme volatile conditions following Putin's vile actions. I think it unlikely, but with Russian asset values, nickel, oil and many other markets behaving like wild mistresses, the risk (and potential reward) for all market participants increases, including for IGG.
Whatever's released, good luck all and let's hope Mr Market loves, not hates, it...
SBC
Those question marks were supposed to be a 'thumbs up' - sorry for the phone text fail.
Fair point Matt ??
I read somewhere that modest interest rate rises will meaningfully boost Tasty and IGG profits, as they then earn more from client deposits. Is that others understanding too?
PS Tasty growth was 34% in constant currency, which has to be the fairest measure.
29% in actual currency, meaning if currency swings had been the equal and opposite way, growth could have been reported at 39%.
But that's all academic, the important point is true underlying growth was 34%...
It's a frustrating drop alright, but given the short-term driver, it's certainly not a worrying one for me. No doubt it's exacerbated by wider negative market sentiment - whenever sentiment improves, hopefully IGG may see a better than average bounceback.
And with Q3's trading update hopefully under 7 weeks away, that should be a catalyst for share price support/appreciation, as I expect it will announce near-record quarterly revenue, maybe close to Q4 2020's £259m.
Looking ahead, IGG are also expected to announce a new dividend policy/capital management plan. Possibly they're waiting for the NADEX/Small Exchange disposal to complete before announcing a plan. Given the increased profits, I think it reasonable to expect the underlying dividend to increase come year-end, with the possibility (but not certainty) of a special divi or share buyback too.
There is always the risk of an unknown shock coming along out the blue, like a trading disaster (remembering the Swiss Franc) or regulatory change, for example in Japan or the US. But IGG have always recovered well from those factors in the past and today's drop is truly trivial in comparison to those factors - TCMI's disposal does not present a barrier to recovery or further gains as far as I can see.
I've bought another 500 shares for circa £4k, as I'm pretty confident in IGG's prospects, with the usual caveat that the future's never ours to see, unfortunately.
I agree with Matt and other positive commentators, it's a great set of interims.
The 1% charitable donation includes employee time spent volunteering - so while that creates a resourcing implication, it isn't a full 1% cash giveaway.
The growing modern focus on ESG factors mean that many funds/investment houses assess a company's ESG credentials before deciding whether to invest in it.
IGG's 1% is partially intended to boost its ESG credentials, thereby improving the industry's reputation with regulators, and to try to meet ESG criteria that a growing number of funds require.
The more ESG funds able to invest in IGG, will create an upward pressure on the share price, thereby boosting shareholder value. So amongst other things, I think the 1% is intended to benefit shareholders, long term...
Thats just my interpretation of it, anyway...
Yes it could just be working capital for the enlarged group.
Also that's interesting to hear there may be more news tomorrow, I'm not aware of any scheduled update.
Good question! Frustratingly I couldn't spot a rationale in the prospectus (what a horrible skim read).
Just an optimistic guess, but IGG holds loads of capital just in case an adverse black swan event resulted in major losses or margin calls (as everyone already knows).
By having this £1bn debt facility, could it enable the company to hold less capital, therefore return more capital to shareholders in future?
Or, could the debt facility just reflect an enlarged client base and enable further expansion - which would also be good news for shareholders.
Obviously I don't know, but the optimist in me hopes they have done it for good reasons.
Anyone else got any ideas?