Ig Share Discussion Threads

[apad] 22/7/2023 16:21

Indeed! Excellent post. Hunter.
I sold IG on the news of the TT acquisition.
I check out TT on You Tube occasionally and I think it needs an enthusiastic crowd of reckless customers to succeed.
I use IG and find them very, very good.
I have been wondering whether to come back in or whether to try a few JIM, who have problems that look more manageable.
I use JIM and they are fine.
Great to see data based opinion and respectfull posts.

apad

[lovewinshatelosses] 22/7/2023 16:07

Great post, Hunter. You have covered some of the content and explanations that I felt disinclined myself to share, after that poster's outburst yesterday.
In fact, it looks like you have actually gone deeper into the nitty gritty than I did, so thank you for bringing and sharing additional knowledge to the table.
And you are, in spite of the TT stuff, like me, long here, so I hope nobody will come on here ranting about fear-mongering, or similar!
Differing ideas and opinions make these boards both enjoyable and educational. Baseless heckling is of zero value.
Anyway, IMO, we are going to struggle to see a 9 without documented improvements or eg a bid naturally (which I do think is a slight possibility, FWIW), let alone something approaching a 10, but I would be delighted if Mr Market proves me wrong! He has done so, many many times before :) GLA.

[hunter154] 22/7/2023 15:14

Good posts by lovewins and Maddox.
Lets go back to the beginning. I don't think anyone thinks IG is currently expensive.
The FY23 numbers show free cashflow of £1.15 ps….so P/Fcf is 6.2….dirt cheap. Fcf is a fact and not subject to accounting gimmickry like PE. IG has one of the best in FTSE 350. Dividend yield is 6.3% so excellent.

The market is not rewarding us for the longer term group performance……the shares dropped precipitously from £9.50 level pre deal announcement, which we have not since reached (market cap was ca £3.2B and we offered ca. £770m for TT). So IG believed that the enlarged group was ca. 80/20 in IG’s favour. Bear in mind, for FY21, we were going to generate £850m in revenue, Profit of £369m and FCF of £465m ( multiples : PS 1.83, PE of 8.67 and P/ fcf 6.9).

TT was doing $120m rev and $48m in FY21 ….numbers inflated by the GameStop nonsense. However, putting the latter to one side, the multiples at acquisition are : PS 8, PE of 20. So management thought that the TT business was x4 the IG val on revenue and x2.5 on earnings…̷0;.they sold us short ; unless we got monster growth at TT.

Two years later, IG do not detail the TT profit figures, because it shows up the management’s folly, but we can track the PS, as this should go down significantly given that we paid handsomely for the monster growth ( a fast growing company’s multiple contracting as they execute.)
The FY23 rev was £170m (say $205m) and this included £50m in interest income ($60m). The PS, based on $1B acquisition price, is x5. Or if we exclude interest income, the PS is $145m.
When the deal was done, rates were zero. We did not pay an exorbitant price to get interest. Central banks policy decisions caused rate to jump. On that basis we should ignore the interest for the purpose of evaluating whether management overpaid in 2021.
Excluding interest, TT’s rev has gone from $120m to $145m….averaging 10% growth. This makes it PS of 7.
That is ludicrous given the monies we paid to acquire them.

I think the above is a sound reason to believe that management significantly overpaid and are now not disclosing the p&l of TT. Market is discounting the current multiple on the basis of this significant overpayment.
I think both CFO and CEO need to go…..if we get someone good to replace them, the price will increase.
If we get £10 a share, I would sell my holding if the current pair remains. Naturally, I am holding till then, as the shares are dirt cheap. Surely a PE fund would take us out if the undervaluation persists?

[lovewinshatelosses] 22/7/2023 13:33

1knocker: Yes, there have been lots of examples of bad acquisitions really hurting the acquiring company over the years.
Maddox: I always try and find weaknesses and potential risks in my holdings, and those on my watch list. Madness not to.
IMO, the track record of TT is simply not long enough to judge with confidence yet. Which is another point of my thesis in relation to the opinion that they paid too much. Especially in this area and for the reasons cited previously. It was Jan 2021, not 2020.
I want to emphasise that I want TT to be a success. I want to see 'harder net trading revenue'. I want to see an increase in the number of active customers. I want to see clear profit for TT, which is clearly not the case right now, or it would have been shouted from the rooftops. And I want to ideally see evidence that they are reducing costs, or at least not experiencing increased costs. None of which are unreasonable expectations I think.

[maddox] 22/7/2023 12:32

I'm new to IGG so still getting my head around the business - so happy to be educated - especially on the negatives. I'm all too aware of my rosey glasses - so please don't hesitate to raise any risks and vulnerabilities.

@love - you mention that tt isn't generating a profit. The 21Jan2020 acquisition rns states that it generated a profit before tax of $49m on a turnover of $116.2m - a healthy profit margin 42% (unaudited figures). So, based on the rns it was nicely profitable when acquired.

[1knocker] 22/7/2023 12:15

lovewins, I would not disagree with much of that. Companies notoriously buy businesses at the top! However, if they pay in shares which are also high (too high?) there is a large element of swings and roundabouts.

Where I totally agree with you is the importance of only making acquisitions which 'fit', which are sound, and which the acquirer is well placed to make a success of. Those which don't or aren't are a drain on financial and management resources and weaken the acquirer. To my mind, that is much more important than acquisition price.

The critical question when it comes to price is 'What is this worth to ME, the acquirer? That depends upon the use I hope to make of it.A small patch of land adjoining my garden may be worth a lot to me, but not a similar patch three doors down the road. Indeed, the patch down the road will probably be a burden rather than a benefit to me, my only hope being that one of the owners on either side will purchase it from me. In that instance, of course, price IS critical, because if I buy it at all it will be with a view to subsequent sale rather than any use I can make of it myself.

As Lloyds demonstrated some years ago, it was not the £1 it paid for a troubled bank which was the problem, it was the troubled bank which it acquired, (over a weekend and without any due diligence) and the re-structuring of the combined business which the acquisition necessitated! It is never a good thing to overpay but is not generally disastrous. It is a disaster to buy, however cheaply, something you would have been better off without.

[lovewinshatelosses] 22/7/2023 10:34

But that is not really based on sound metrics, 1knocker.
Do not misunderstand me, I totally get the sentiment angle. We all experience that to one degree or another. And for a short term trade, rather than a planned LTH, you could argue that is the only thing that matters.
As I have said in the past here, this was one of my cherished LTH stocks. I have not added up all the profit I have made over the years from dividends and capital gains from various sales here, but I do know it has been fairly material. Not including the small percentage paper profit I currently have here either.
The difference for me is that it has gone from a buy, add, hold and forget stock, to one that IMO now requires more regular and closer attention. The risk has increased. Always some risk to any stock, not saying differently, but the risk profile because of TT has increased IMO.
Final point on the TT purchase cost itself.
If I buy an apple tree, unless over a period of time I get a yield of apples that is greater than the sunk cost of the tree, then it will have proven to be a poor investment. Especially when you add labour costs for cultivating that tree...let us pretend you add fertilizer costs too etc...not sure if I have made the point very well using this analogy, but I need to dash now. Good weekend all.

[1knocker] 22/7/2023 09:00

I see force in Maddox analysis. When one pays in shares, a lot depends on the price at which the shares are brought into account for the purposes of the purchase!

The current price of the shares against the price posters paid also colours their view of the company, whereas logically it should colour their view of their purchase transactions. Investors can overpay too, and they are paying in ££ !

As my holding is 15% up (including a recent top up at 664, a significantly higher price than I paid for my initial holding), I naturally look at IGG with a kindly eye. Indeed, on a total return basis, it is doing me very well. Even those who are under water on the capital account will be doing OK on a total return basis if they have held for a few years. The time for concern will be if the dividend comes under pressure.

[lovewinshatelosses] 22/7/2023 08:42

OK - your civil response, with some material to back up your opinion, deserves a reply.
So - very briefly - I will outline some of the things that formed my opinion back when the TT acquisition was announced in January 2021.
I was one of at least several holders back then who felt the deal was done at the top, or near the top, of this particular cycle.
We do not know exactly when the company started exploratory activities into TT, but there is a fairly good chance that the meme stock craze of 2020 (especially across the Pond) accelerated the process of the acquisition.
Anyone with a modicum of sense, and awareness of history, could see that huge QE, on top of shutting down large parts of the economy, while paying a large number of people to essentially not work and to stay at home, would lead to high inflation.
I know the politicians and central bankers did not seem to get this, but I did, along with a number of more intelligent and better qualified people than me.
I alluded to this likely consequence on at least one of the other chat boards no later than the summer of 2020, and thereafter, so not a case of being wise after the event. Also later commenting when inflation was deemed 'transitory' to suggest it was not etc.
This includes spotting some of the asset bubbles, which QE drives, for example.
I agree US valuations are steep - but at some point, they will revert to the mean, if history is anything to go by. But maybe this time will be different? Only time will tell. IMO, however, this time will be no different to the past - sooner or later.
It seems that interest income is taking the edge off 'softer net trading revenue'. I would not like to see us having to continue to depend on that.
But back to why high inflation is important in this case...lower disposable income, rising job losses (especially in the better paid spectrum), which is especially key to many of the lower end retail traders, will IMO continue to 'soften' net trading revenue and IMO will be proven come the next update.
Unless TT starts turning a profit, how is the deal ever going to be proven to be good value? Revenue is vanity, profit is sanity. Old fashioned, I know.

[masurenguy] 22/7/2023 08:28

Excellent post Maddox.

[maddox] 22/7/2023 00:07

Hmmm not seeing many valuation metrics presented here on either side of the argument - bare assertions aren't very enlightening.

As far as I can see IGG paid c. 8.6x revenue for a business growing at 40%+ in a market growing at 25%+. We're talking about the US here - where valuations are steep - and for a high growth profitable firm in an attractive market. Are there any comparable transactions in this sector that look better or worse value?

Also, looking at what IGG paid. They put a value of a $1bn on the deal; $700m of this was in IGG shares - 61m shares. That puts a value on each share of $11.48 in todays money that's 890p. However, IGG are now buying back shares. Up to 21 July they've bought back £200m at an average cost of 756p - a 15% discount to their issue value. So, with another tranche of buy-backs underway the deal is getting cheaper every day.

Happy to have alternative view points.

[hunter154] 21/7/2023 22:23

Reading between the lines, you haven’t got a clue how to assess valuation…..you are just making it up as you go.
I like sharing ideas and debate on these boards to ensure that I form a balanced view of investments / potential trades.
Looks like you want to live in an echo chamber.

[woodhawk] 21/7/2023 20:55

IGG, a very successful company with a proven track record, clearly did. "Hunter154", an anonymous poster on a board, deems otherwise, as does the pointless previous poster. I know whose judgement I am more likely to give the benefit of the doubt.

[hunter154] 21/7/2023 20:39

IG paid $1 billion for TT.
On what metrics might a sane person think it was value for money?

[lovewinshatelosses] 21/7/2023 20:37

I am sure we have both read the same company material. We are both long here too, it seems, although have a difference of opinion when it comes to determining the value of the TT acquisition.
Rather than an apology, you have simply doubled down. Fine. As you say, this is an anonymous board, so feel free to say and write whatever you wish, as far as I am concerned.
I have no intention of writing at length some detailed content for my thesis on this. Certainly not after the tone you have taken.
Ultimately, it clearly has not been a red line for me, or I would not have bought back in fairly recently, nor retained my current holding (which is smaller than it once was, but nevertheless).
Anyway, this is a waste of an evening, on a par with the dullness of two blokes arguing over what the better formation is for X football team etc. Life is too short as it is.

[hunter154] 21/7/2023 20:36

Woodhawk you clearly think that IG didn't over pay for TT based on your responses….please enlighten us of your rationale?

[woodhawk] 21/7/2023 20:19

Yes, yes, yes. At the end of the day, you're an anonymous poster on a board - so instead of prattling on about your fantasy and unverifiable achievements, how about explaining your rational for declaring that IGG overpaid? Some actual facts, please!

[lovewinshatelosses] 21/7/2023 20:09

I did not expect such a comment from you, Woodhawk. I have established more than one business in my life.
The results have allowed me the luxury of playing the stock market. Which I find really enjoyable, although often challenging, in a totally different field to my career expertise.
If I can become half as financially successful at this as I was in my previous life, then it will be most gratifying.
I was never the best, but I was good enough to have this freedom before I was 40 and quite the opposite of a trust fund baby, so no parachutes either, in case you were wondering.
But building and running businesses makes you humble and should make you extremely careful with cost management IMO. Hence my zoning in on boring stuff like rising costs, revenue versus profit etc.

[woodhawk] 21/7/2023 19:47

"Not even turned a profit yet" LOL! I bet you've never run any kind of business - just some glib armchair critic.You have no idea of what the timescale might be. Join the real world.

[lovewinshatelosses] 21/7/2023 19:27

Based simply on how much the purchase cost us at the time, which has not even turned a profit yet. We have heard about revenue growth, which is all well and good, but you know the saying about vanity and sanity...

[maddox] 21/7/2023 19:19

Hi love

On what basis do you judge them to have overpaid?

[lovewinshatelosses] 21/7/2023 19:08

This one was the same for me, until that TT deal. Am still to be convinced (not that they overpaid, because they clearly did, but whether it can sustainably deliver enough to avoid it being a disaster).
Back in a small paper profit now, so am satisfied with that. Will take a view if (or hopefully when) we get back over the 200DMA. Not averse to averaging up, if I think it prudent to do so. But no rush to make a decision, IMO. Good weekend all.

[woodhawk] 21/7/2023 11:12

I'm here for the longterm divis, so I appreciate low share prices!

[lovewinshatelosses] 21/7/2023 10:56

Yeah, TBH, I would take 900 pence :)