IG Group released a trading update on Monday morning.
The London-listed broker said it expects revenue for the year to be at the top end of prior estimates at around £1.05bn. Net income is expected to be £516.3m.
However, the more striking piece of information in the update was around the company’s debt facilities.
IG Group said it has expanded access to its existing revolving credit facility (RCF). This now stands at £600m and will mature in 2030. The company previously had access to a £400m RCF, which was set to mature in October next year.
The other change is that the company said it will issue “a senior unsecured bond to provide long‐term financing.”
Without going too much into the details, in 2021, IG Group refinanced and restructured its debt by issuing bonds using a Euro Medium Term Note (EMTN) Programme.
This basically allows the group to get faster, more flexible access to debt markets.
More acquisitions to come?
IG’s own financial reports indicate it primarily uses its RCF to get quick access to cash when it needs to put down more margin with its hedging brokers.
However, the facility could theoretically be used to make investments. The same is true for the new bond the company plans on issuing, the exact terms of which are not entirely clear.
The broker said in its trading update that it the increased size of the RCF reflected “the increased size of the business and will support future growth objectives.”
Although it’s plausible the new notes issued under the EMTN will be for working capital-type functions, it’s hard not to think that they’ll be put towards growth opportunities.
As IG notes in its own prospectus for the EMTN, growth is likely to come from new products and via geographical expansion.
Given the company has already splashed out to acquire a stockbroking arm – Freetrade – it seems plausible the company will do the same to expand into other areas, like crypto.
If the company does choose to go down that route, it may reflect a couple of things.
One is that the company issued 61.0m shares to acquire tastytrade in 2021. This meant the owners of tastytrade controlled 14.1% of IG Group post-merger, which gives you a sense of how dilutive that was to existing shareholders. It’s plausible the company does not want to repeat that by funding investments using newly issued equity.
The other point may simply be that the company believes debt-funded transactions can be accretive to returns long-term. In other words, given the choice of issuing equity, using existing cash holdings, or borrowing funds, the company believes the latter makes the most sense financially.
