IG Group’s revenue skyrockets 15% in Q1 FY25 – Is the stock a must-buy?

IG Group Holdings plc has reported a substantial 15% year-on-year increase in its revenue for the first quarter of the financial year 2025 (FY25), highlighting a robust recovery amidst market volatility. For the three months ending 31 August 2024, the online trading and investments leader recorded revenues of £278.9 million, up from £242.9 million in the same period the previous year.

Revenue surge driven by market volatility

The growth in IG Group’s revenue was primarily attributed to increased revenue per client, bolstered by heightened volatility across various asset classes in early August. This surge in volatility led to significant trading opportunities, particularly in Over-The-Counter (OTC) derivatives and exchange-traded derivatives. Revenue from OTC derivatives climbed 14% to £208.1 million, while exchange-traded derivatives experienced a 20% rise to £59.6 million. Stock trading and investments also saw an 8% uptick in revenue to £11.2 million.

Despite the positive revenue growth, the number of active clients slightly decreased by 1% year-on-year to 263,200. This decline, while minor, reflects broader market challenges such as cost-of-living pressures that have impacted retail trading activity. However, IG Group remains optimistic about maintaining its growth trajectory for the rest of FY25, supported by robust product performance and client engagement levels.

Net interest income and segment performance

Net interest income for the quarter rose to £36.8 million from £34.4 million a year ago, with a significant portion generated from exchange-traded derivatives. Tastytrade, IG’s US subsidiary, also contributed substantially to this growth, with total revenue increasing by 18% to $70.8 million. The platform has emerged as a key growth driver, with net trading revenue up 27% in USD terms.

Capital strategy: Share buyback programme

In a move to enhance shareholder value, IG Group announced a £150 million share buyback programme. The first tranche of £75 million has already been executed, and the second tranche is expected to commence shortly. This programme is set to be completed by the end of January 2025, contingent on share price performance and other capital needs. The buyback reflects IG Group’s confidence in its financial stability and growth prospects.

Expert opinion: Analysts remain bullish on IG Group

Financial analysts are largely optimistic about IG Group’s future performance. The consensus among experts is a “Strong Buy” rating for IG Group’s stock, underpinned by robust financial health and the company’s strategic focus on capital efficiency. The company’s diversified revenue streams across different asset classes, coupled with its strategic share buyback, position it well to navigate market uncertainties and capitalise on potential growth opportunities.

Given the current economic landscape, the company’s strong revenue growth amid elevated volatility underscores its capability to manage market fluctuations and leverage trading opportunities effectively. With FY25 revenue expected to hit £1.03 billion and a profit before tax forecast at £491.8 million, IG Group’s outlook remains positive as it aims to meet market expectations.