IG Group stock dips after UBS downgrade
IG Group has been downgraded by UBS, sending its stock price down amid fears over the weakness of the US dollar.
The FTSE 250 trading firm was downgraded from a ‘Buy’ to ‘Neutral’ by UBS analysts, who cited its relatively high valuation and growth challenges.
IG Group’s stock price surged more than 15 per cent in the six months before the downgrade, but has dipped three per cent today.
While the Swiss bank forecasts that the firm’s full-year results in July will be strong, thanks to increased trading activity and higher market volatility, maintaining growth over the next year might be more challenging.
IG’s Freetrade deal
As IG Group works to improve its product and expand into new markets with the acquisition of Freetrade, UBS warned that “change takes time and carries significant execution risk”.
Earlier this year, IG Group completed its acquisition of stock trading app Freetrade, along with its 720,000 customers and £2.5bn in assets, for £160m.
The firm has also been leaning more into derivatives with its Tastytrade platform, which the UBS analysts were sceptical could continue with its strong performance.
“We see a muted growth outlook for the retail derivatives businesses, with Tastytrade facing USD weakness,” said UBS analyst Haley Tam.
IG Group’s stock price reached a new all-time high last month, after upgrading its profit guidance due to “higher levels of client trading activity than expected in typical market conditions”.
This actually caused the UBS analysts to upgrade its stock price target, from 1,150p to 1,200p.
The business is still priced on the lower end of investment trading platforms, with a 10 times price-to-earnings multiple, compared to 12 times for rival Plus500.
“We see this fairly reflecting the transactional nature of its business, with a lack of clearly sustainable account balances or client relationships,” added Tam, adding that IG Group faced more execution risk than competitors as it was further along with its diversification plan.
Earlier this week, IG Group has become the first UK-listed company to launch crypto trading to retail investors.
Customers on the trading platform can now buy, sell and hold crypto assets, with IG Group charging 1.49 per cent on each transaction.