UBS lowers IG Group to 'neutral', says risk-reward more balanced

21st Jan 2015 10:56

UBS said that the risk-reward balance when investing in IG Group is now more balanced due to its high valuation and limited operating leverage, as it cut its stance on the stock from 'buy' to 'neutral'.The shares are now trading at a 17% premium on a price-to-earnings ratio basis to the wider sector.While this is lower than its long-term average multiple of 24%, UBS has chosen to take a more cautious view and has removed IG from its 'Most Preferred' list.IG's shares came under selling pressure last week after the CFDs and spreadbetting provider reported around £30m of losses from a surprise Swiss National Bank decision to remove a currency ceiling.UBS said the company's interim results on Tuesday "provided comfort" that there were minimal further exposure to the event and the shares have mostly recovered since."However we believe that investors will now have to see a particularly strong trading environment for further upside to show through," the bank said."In this scenario, given higher than anticipated levels of investment, a likely pick up in variable comp and limited further re-rating potential of the shares, we see the upside risk as balanced with downside risk of a softening in volatility."The bank lifted its target price for the stock from 720p to 760p.The shares were up nearly 2% at 744.68p by 11:06.