IG Group Holdings plc (IGG) Earnings Call Transcript & Summary

Good morning, and welcome to the Investor and Analyst Call for IG Group's Half Year 2026 Results Presentation. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to Breon Corcoran, CEO, to begin the presentation. Please go ahead.

Good morning, and thank you for joining us. I'm here with Clifford Abrahams, our CFO. You'll see the agenda we have on the screen. We will take questions at the end. This has been a strong first half, broad-based growth and clear evidence that the strategy we set out in July 2024 is working. Starting with customer acquisition. We delivered the sixth consecutive quarter of sequential growth in active customers, the single best indicator of the health of the business. Organic active customers up 13% organic first trades up 74%. Second, growth was broad-based across every product. Faster product velocity, disciplined marketing and supportive market conditions resulted in organic total revenue up 17% and 20% organic net trading revenue growth. As set out in May, our upgraded outlook targets organic total revenue growth of at least 10% a year beyond 2026. Third, we sustained strong margins. The first half EBITDA margin was 44% with continued investment in our propositions, higher marketing spend and costs associated with the strategic review, partly offset by a lower cost to serve. Fourth, Underdog transforms our future growth. The acquisition opens up the large, fast-growing U.S. daily fantasy sports and prediction markets. It transforms our U.S. footprint and accelerates stand-alone revenue and EPS growth. Fifth, the strategic review we announced in March is now substantially complete. This month, we set out plans to Redomicile to Jersey and a refreshed organizational model. We've also announced the acquisition of Underdog. Our listing venue will remain unchanged as a result of the strategic review. We continue to explore future growth and efficiency initiatives, and we'll present a refreshed strategy and a strategy update on the 22nd of October. Let me hand over to Clifford for the financials.

Thank you, Breon, and good morning. You've seen the headline numbers, growth across our key measures. The first half confirms that our investment in product, marketing and people is translating into stronger financial performance. Growth was broad-based. Marketing generated attractive returns and margins remained strong as we invested for growth and absorbed the cost of the strategic review. Starting with the headlines. Total revenue was GBP 643 million, up 18% and up 17% on an organic continuing operations basis. The EBITDA margin was 43.9% against 49.6% in the first half of '25, reflecting consolidation effects, strategic review costs and a deliberate choice to keep investing behind growth. I'll come back to costs shortly. Adjusted EPS was up 21% and 22% organically, supported by share buybacks. In line with our progressive dividend policy, the Board has proposed an interim dividend of 14.46p per share, 30% of the prior year full year dividend on the group's old 31st of May year-end basis. Turning now to customer metrics. Growth accelerated through the half. Organic first trades, our lead indicator of future growth, were up 74%. Active customers were up 13%, accelerating to 15% in the second quarter, the sixth consecutive quarter of sequential growth that Breon mentioned. On a reported basis, growth is higher again, reflecting free trade and independent reserve. Next, on to platform assets under administration and flows, an increasingly important driver for the business. We're pleased to see that assets under administration on the IG platform reached GBP 21.5 billion, up 34%, driven by sustained net inflows across our stock trading and investments proposition, including free trade. The standout is our U.K. direct-to-consumer platform. First half net flows were equivalent to around half of our opening assets under administration, roughly 6x the pace of the market, with IG now capturing an estimated 8% of U.K. market net inflows. We're building a genuine challenger position in U.K. investments. We've broadened the proposition. Customers are looking for better value than the incumbents offer, and we'll keep investing behind it. Turning to the P&L. Net trading revenue was GBP 589 million, up 21% with growth across every product line, reflecting both higher revenue per customer and a larger active customer base. This reflects the hard work of our teams delivering more product to more customers much faster. Net interest income was down 10% as higher customer cash balances were more than offset by lower rates and greater pass-through to customers. Total revenue was GBP 643 million, up 18%. Operating costs before depreciation and amortization were GBP 362 million, up 30% reported and around 25% organically, reflecting higher marketing, continued investment in product technology and nonrecurring strategic review costs. EBITDA was GBP 282 million, up 4% and up 7% on an organic continuing operations basis. Below EBITDA, other net losses reflect 2 key items: first, a GBP 19 million revaluation of the Payward stock received as part of the small exchange disposal last year. Second, an impairment relating to Independent Reserve, partially offset by a release of deferred consideration given more challenging cyclical conditions in digital asset markets. Adjusted EPS, which strips out nonrecurring and nonunderlying items was up 21% to 68.9p. Next, performance by product in the first half of 2026. Growth was broad-based across every product. That breadth matters. It shows our growth isn't reliant on any single product, and it reflects the work we've done to broaden our propositions, widen our appeal and deliver more consistent sustainable growth. It's the same picture by division. Organic revenue growth everywhere, which is really encouraging. U.K. and Ireland net trading revenue was up 22% organically. APAC and Middle East up 27%. The U.S. was up 18% and Europe up 10%, a broad base of growth, not reliant on any single market. Moving now to costs. Total operating costs increased 26% or 19% organically.[ Marketing was up 51% to GBP 75 million ], driving a 107% increase in first trades with paybacks under 6 months and lifetime value around 4x acquisition costs. Fixed remuneration was up 15%, driven by the consolidation of free trade and Independent Reserve and including GBP 6 million of restructuring under our refreshed operating model alongside inflationary salary increases. On an organic basis, headcount was down 10% even as revenue grew 17%, reflecting our focus on a lower fixed cost to serve and on automation. Legal and professional costs increased, reflecting the nonrecurring costs of the redomicile, restructuring associated with our refreshed organizational model, together with the strategic review and technology consulting to build our product engineering capability. This slide breaks out the cost movements in more detail. Strip out acquisitions and nonrecurring items and underlying costs were up 12%, well behind our revenue and active customer growth. The larger driver was marketing. We increased spend as planned, and we're seeing strong returns. The rest of our organic business as usual cost base grew 6%, mainly reflecting inflationary salary increases, continued investment in technology and higher market data and revenue-related costs. Beyond that, the remaining movement is acquisitions and strategic review costs, a full 6 months of free trade this year against 3 last year, Independent Reserve from the end of January and nonrecurring costs, which I mentioned earlier. On capital, our position remains strong. Solvency sinks comfortably above the top end of our long-term target range, and we expect to return within it by the end of 2026 pro forma for the Underdog acquisition. As Breon mentioned, on July 8, we announced plans to set up a new Jersey Incorporated holding company. Around 2/3 of group revenue is now generated outside the U.K. So a Jersey holding company better reflects our international footprint and gives us a simpler, more efficient structure with greater strategic and financial flexibility. Following completion, we keep our London listing, our eligibility for the FTSE U.K. indices and our U.K. tax residency. There's no change for customers or employees and no change to our operations from the redomicile. The redomicile will be implemented by a scheme of arrangement subject to shareholder and regulatory approvals with completion targeted for the fourth quarter. The shareholder circular was published on the 16 of July and the EGM takes place on the 3 of September. With that, let me hand back to Breon to cover our strategic progress.

Thank you. Back in July 2024, we set out what we believed was needed to fix across product culture and efficiency. This is where we are now 2 years later. On product, we've closed the priority gaps across our markets, including stock trading and crypto and our unified proposition is on track to launch early in half 2, starting in the U.K. market. On culture, our refreshed organizational model reduces complexity and sharpens focus, and it's already delivered a step change in product velocity. On efficiency, we've lowered our fixed cost to serve through digital servicing and lifted customer income retention. The outcome is in the metrics. Organic active customers up, revenue per customer up sharply and cost to serve down materially versus 2 years ago. Now to product velocity, which is critical in this industry. We've made good progress on competitiveness. In the first half alone, we brought almost as many new products and features to market as we did in the whole of 2025. Here's what this looks like. I'm encouraged by the wide range of product enhancements delivered in the first half. In the U.K., we materially upgraded our investing proposition, a much broader range of global stocks, ETFs, mutual funds, fixed income, tax wrappers plus fractional shares. In crypto, spot trading is now live on our FCA license platform with over 150 coins alongside perpetual futures, crypto swaps, transfers and advanced charting. We also rolled out spot crypto trading in France and completed the acquisition of Independent Reserve in Asia Pacific. In the U.S., tastytrade recently launched prediction markets. Following the removal of the Pattern Day trading rule in June, it also saw an encouraging pickup in options activity from customers previously constrained by that rule. Staying with product, the biggest unlock this year is our unified proposition, launching initially in the U.K. in the coming weeks. It brings trading, investing and crypto together on a single platform and is built to allow the addition of new products quickly. It expands our addressable market, improves acquisition effectiveness and speeds up product delivery. Multiproduct adoption in the U.K. is already up strongly year-on-year and the unified proposition will put more of our products in front of more of our customers. Turning next to culture. We streamlined from 5 divisions to 3, IG Consumer, IG Securities, our platform Technology institutional business and IG North America, including tastytrade. Dedicated commercial, product and compliance teams stay embedded in each division, so we keep our customer focus while taking out a layer of complexity that was slowing us down. Turning now to efficiency. I'm pleased that we've made further progress on cost to serve with organic fixed cost to serve per funded account down a further 15% in the half. That's funded higher marketing spend at attractive returns. There's more to do, but these returns support continued investment. This brings me to the strategic review we launched in March. It's now substantively complete and has delivered 3 key outcomes: the proposed redomicile, a refreshed organizational model and the acquisition of Underdog. Together, these set the group's direction for the next phase of growth. We continue to explore incremental growth and efficiency initiatives, and we'll set out our refreshed strategy, guidance and capital allocation framework at the strategic review on the 22nd of October. Let me turn to Underdog. We launched our strategic review in March, which prioritized acquisitions aligned with our M&A framework. We've looked at very many opportunities, prioritizing growth and innovation and Underdog stood out. We're clear-eyed about the risks, including the fast-moving regulatory environment. And Underdog's product and leadership team are well placed to win, and we've structured the transaction around performance. Underdog is a leading U.S. prediction markets operator, spanning both daily fantasy sports and prediction markets. This is a landmark deal for IG. It establishes us as a leader in U.S. prediction markets, one of the most significant opportunities across trading, investing and entertainment. It gives us entry into a high-growth adjacent category initially in sports and then later into financial markets, culture and politics. Underdog brings nearly 1 million mobile-first monthly active users. It has strong brand equity in sport and a fully integrated license stack spanning brokerage, exchange, clearing and market making. This gives it full control over product economics and risk. Underdog is growing rapidly with significant potential in a large and fast-growing market. Net revenues for the 12 months to June 2026 was $466 million, up 21%. That continues a strong trajectory from $9 million in 2021 to $40 million -- $441 million in 2025, growth of 63% in that final year. Monthly active users reached nearly 1 million, up 39%. Daily fantasy sports has been the engine of Underdog's growth, but as a game of skill, it's limited to around 1/3 of what customers want. Prediction markets change that, simple addressable format for customers used to sports gaming. Prediction markets have grown very quickly with sports by far the largest and fastest-growing part with more than 50 million U.S. sports betters and daily fantasy players already comfortable with this style of risk taking. It's a pre-converted pool Underdog is well placed to capture. Turning now to how Underdog fits with IG's strategy. This deal is firmly aligned with IG's strategic focus on product, culture and efficiency. On product, it closes a gap in a high-growth category and broadens our appeal to a younger demographic. On culture, it brings a share obsession with customers and product velocity and a strong culture of ownership. On efficiency, it's a vertically integrated scalable platform with attractive marketing payback. Together, we unlock a large mobile-first user base. We can scale Underdog's product through tastytrade in the U.S. and over time through IG's unified proposition globally. As one business, we can grow it faster and generate more value than either of us could alone. With that, I'll hand over to Clifford.

Thanks, Breon. The acquisition of Underdog doubles IG's U.S. revenue and increases our U.S. active customers more than tenfold. On a pro forma basis in 2025, the U.S. would have accounted for around 40% of group revenue against around 22% stand-alone. The acquisition diversifies our growth drivers by product. Prediction Markets and DFS would have represented around 25% of combined group revenue. It also transforms our demographic profile. Over 60% of underdog customers are under 30 and over 80% are under the age of 40, lowering IG's average customer age from around 42 to 34 on a pro forma basis. Strategically, Underdog delivers the vision from our strategic review, positioning IG at the center of the convergence across trading, investing and entertainment with a category leadership position in a structural growth market. Financially, our stand-alone revenue guidance, which we upgraded in May, is unchanged, at least 10% organic total revenue growth a year and underdog growing faster is expected to lift the combined group above that level. The deal is broadly neutral to adjusted EPS in year 1 and double-digit accretive by year 3 with return on invested capital exceeding our cost of capital by year 3. We're maintaining our progressive dividend policy, and we intend to pause our current share buyback. We expect to be in a position to consider resuming this in 2027 following completion of the redomicile and subject to share price performance and other demands on capital. The consideration aligns a meaningful share of value with future performance through the earn-out and the management incentive plan and underdog will continue to operate as a commercially stand-alone business, mitigating integration risk. With that, back to Breon for some concluding remarks.

Thank you, Clifford. We delivered strong first half results with growth across every key metric, revenue, customers and returns and momentum building through the period. The strategy we set out in July 2024 has delivered a step change in performance, including stronger customer acquisition, broad-based revenue growth and sustained margins as we invest. And with Underdog, we've announced a transformational acquisition that will drive our revenue and earnings growth in the future. The strategic review we announced in March is now substantially complete. We continue to explore incremental growth and efficiency initiatives across the group, and we look forward to presenting our refreshed strategy, capital allocation framework and guidance and a strategic review on the 22nd of October. Thank you. We'll now take your questions.

[Operator Instructions] Our first question is from Ben Bathurst from RBC.

Hopefully you can hear me okay. Question in a couple of areas, if I may. Just starting on costs. I just wondered, do you have any visibility on the nonrecurring costs that you expect to incur in the second half of 2026? And if so, could you give a guide on what level that might be? And then secondly, just moving on to Underdog. On the call last night, Breon, I think again earlier, you mentioned that you entered into the deal clear eyed as to the regulatory risk. Can you just share briefly what you see the key risks as being there and how you've gotten comfortable over those risks in doing the deal? And then also on Underdog, you referenced 1 million Underdog users. I just wondered what proportion are currently using the prediction market product versus the daily fantasy sports product of that 1 million users? And what do you see as being the more important lever for growth in the short term? Is it increasing the prediction market penetration of that 1 million customers? Or is it about adding new customers altogether?

So thanks, Ben. We highlighted the nonrecurring costs on Page 13 for the first half. I'm not going to guide the nonrecurring costs for the second half. But as you know, today, we reconfirmed our guidance that we set out in early July in terms of growth, we're comfortable with consensus, and we've stuck with our guidance of mid-40s EBITDA margins.

Thanks, Clifford, and thank you, Ben. clear eyed might be one of those phrases that I'll have to listen to for a while. If I point you to Page 31 of the appendix on the Underdog deck, it kind of goes to some of the regulatory matters. But there's a shift from state-by-state licensing of daily fantasy, sports betting, gaming towards the federal CFTC licensing structure. That shift is well underway and the CFTC has a clear mandate to regulate event contracts, prediction markets in particular. Some of the states are defensive about their heritage in licensing and one might opine that, that could be about tax protection or that could be something as philosophical as a state right matter in the United States. So there is regulatory uncertainty here. And with uncertainty, I guess, comes some risk. When we say that we went into this clear-eyed or open-eyed about the outcomes, I think I'd ask investors to focus on the fact that today, we're buying 100% of a business that is a market-beating team. It's a product-led company. It has quickly and in a capital-efficient way, built a brand that resonates and is relevant to several million customers in a competitive market in the United States. And these customers on a daily basis, express opinions around sports and increasingly do that through CFTC prediction market rails. Much of that is synergistic, strategically synergistic and capability synergistic to what we do at tastytrade, where we have a deep expertise-led business that in truth has slightly struggled with relevance for a broader customer base. So I think in the medium term, as we see more convergence of trading and betting or more convergence of people expressing opinions in high engagement markets, I think a team that's product-led that has built a contemporary dynamic brand fits very well with the expertise and competency and compliance capability that we have in Chicago at tasty (sic) [ tastytrade ]. And that's kind of why we're excited about this deal irrespective of the regulatory end state. To your question about the mix on prediction markets, and I think we talked a little bit about this on the call last night. We're expecting over time that what Underdog have done is they pivoted from the daily fantasy model, they skipped online sports betting and are now moving to prediction market rails. They did that first with Kalshi with crypto.com, but they're now moving to their own fully owned licensing stack. I'm sure we'll come into some of the detail on that later over the coming days. But on Slide 30 of the Underdog deck from last night, there's an indication of the handle, so the volume going -- the notional volume going through the different models. And whilst it's only a tiny amount now on their own prediction rails, I mean, that literally is -- now is the point of explosion and that is literally a traffic that has started to move through their rails in the last 2 weeks, and we're very, very excited about how that growth will explode from here on out. But we're not giving guidance on customer numbers. We don't have that visibility as yet. But what I think we have here is a monetization mechanic for people who currently express opinions on sports. And I think in due course, will allow us to monetize how people express opinions on financial markets as well.

Our next question is from Hal Potter from Bank of America.

Just 3 from me. One of them is on marketing efficiency. So you mentioned the 6-month payback and LTV to CAC ratio at 4:1. That's the same as we had at 2025. I think they rounded figures. Can you give us any comfort around your marketing becoming more or less difficult in the face of heightened competition? And then on capital allocation, what can we read into your shift from what I suppose is a dependable buyback into M&A in a relatively volatile space with that regulatory overhang? How are we supposed to think about capital allocation going forward? And then a little bit on capital allocation even further. Regarding the redomicile, are we expecting a bit of excess capital to be unlocked? And how would that feed into your policy going forward?

If you don't mind, take the redom and the capital questions. On the marketing efficiency, I don't love these numbers in that they're rounded and very summary in nature. And at any point in time, we're using different levers, and we're using different levers in different geographies with different competitive dynamics. So there are times when product does more of the work, product releases does more of the work. And you've seen the progress we've made on that and just even in the U.K. over the last couple of years. But there are other times when marketing does more of the work. And even within that, there's a mix between brand spend out of home, for example, and performance marketing online. So the number is there to give investors comfort that we're still in the same ballpark. Sometimes it feels a bit better, sometimes it feels a bit worse. But it is a very aggregate number. And I think in truth going into much more detail and would not be helpful. And we call out -- and I think we stressed it appropriately. We call out the 6 sequential quarters of actives growth in actives. And I think that's the number that one should look at. And in the round, we will spend -- we will increase marketing as we run the business more efficiently. We've said that we think we're underspending relative to a lot of the competition. We've increased marketing spend dramatically, but I think there's opportunity to spend more and to fund more spending from the business growth and from continuing to run the business more efficiently. But I think directionally, that numbers give investors comfort that the story is largely intact rather than to encourage much more specificity around either geographies or a short sample of time. I can't remember the question.

Yes.

I can't remember the question.