Numis upgrades IG Group to 'buy' but cuts target price

8th Dec 2016 09:35

(ShareCast News) - Numis has upgraded IG Group to 'buy' from 'hold' but cut its target price to 590p from 850p, saying it believes the spreadbetting firm is well placed to manage proposed new regulations.IG's shares took a tumble on Tuesday after the Financial Conduct Authority recommended tighter rules on contract for difference products sold to customers, including spread bets.While Numis believes IG's revenues will be lower following the FCA's new rules, it said: "We believe IG is by far the best placed to manage the regulatory change with its historical focus on higher value customers where the CFD product is most appropriate. "The broker has downgraded its earnings per share forecast for the year to May 2018 by 37.5% to 28.9p and predicts revenue per customer declines of 27.5% in both the UK and Europe. Numis said the 18% customer growth expected this year in the UK is likely to fall to zero next year."Overall our EPS forecast for this year remains unchanged but it declines 37.5% to 28.9p in 2018," Numis analysts said."We expect IG to pay-out its guided 70% this year and given its balance sheet strength and the expectation of a return to good growth in 2019 we have assumed the dividend is held until the cover is returned to target. Consequently IG will provide investors with a 6.7% dividend yield and it will be being valued at 16.8x 2018 earnings."Shares dropped 2.55% to 499.92p at 1001 GMT on Thursday.