In addition to the tragic loss of life, the coronavirus pandemic has wreaked havoc on businesses around the world. Like most things, however, there have been exceptions to the rule.
Among those who’ve seen a rise in demand for its services is online trading specialist IG Group (LSE: IGG). Today’s update for the three months to 29 February had a tone similar to those recently released by industry peers CMC Markets and Plus 500.
Top performer
As expected, the company has seen a “significant increase” in clients using its platform. The number of active traders on its books has soared 21% over the period to 101,700. The last week of the quarter was particularly busy, thanks to the “exceptionally high” volatility, as the world grasped the seriousness of the coronavirus outbreak.
Given this, it’s no surprise IG’s revenue has shot up. Just under £140m was generated over the period, representing a 29% increase compared to the same quarter a year ago.
To put this in context, this was the company’s best quarterly performance since new regulations giving more protection to retail clients were introduced in Europe in 2018. It was also the third-best quarterly performance in IG’s entire history!
Having been a holder of the stock for a while, I welcome these numbers with open arms. I’m also encouraged by the possibility things might get even better in the fourth quarter. This morning, the company revealed it had already brought in £52m in revenue over the first 12 trading days of the period.
So, are the shares a buy?
Despite falling heavily in early trading, IG’s share price has still fared better than most over the last month. A drop of 20% since mid-February is far easier to accept compared to stock performances in the travel, retail, oil and banking sectors.
Clearly, further falls can’t be ruled out. Moreover, a full recovery in the share price back to levels seen towards the end of 2018 will take time. With IG down to return 43.2p per share to its owners in the current year, I think those holding will receive sufficient compensation for being patient. As it stands, this equates to a yield of 7.7%.
Right now, I’m assuming no cuts to this payout are on the horizon. That said, it’s important to know that Australia will soon follow Europe and introduce new regulations on retail clients. On this issue, IG merely said its actions to mitigate the impact on business were “progressing as planned“. It added that no new information on when rules would be introduced had been received.
Before markets opened this morning, IG’s stock traded on 15 times forecast earnings. Quite how much faith you place in this and the valuation of any other company at the current time is another thing entirely.
No one, including IG, has any clue how long the current trading environment will last. Predicting revenue going forward is, therefore, tricky. Nevertheless, I maintain this is a quality stock to hold for the long term.
With its counter-cyclical qualities, strong balance sheet, and those aforementioned juicy dividends, I’m likely to buy more of the stock in the current crisis.
