The broker cut its recommendation to ‘hold’ from ‘buy’ after downgrading earnings forecasts and after a strong run in the share price.
READ: IG Group hails exceptional fourth quarter as coronavirus volatility sends trading activity rocketing
ShoreCap cuts its estimates for earnings per share for the year ending next May by 6% to 53.8p, reflecting increased cost guidance, and for the following year by 1% to 54.4p.
Reflecting these downgrades, the broker’s fair value was reduced to 810p from 860p and based on a long-term P/E ratio of 15 times.
“After peaking in May, trading conditions have been on a reducing trend, with IG expecting market volatility and client trading activity to normalise over the course of FY 2021.
“This message is consistent with indications we have seen from adjacent parts of the market regarding retail trading activity.”
But, “supernormal” trading conditions are expected to persist into the current quarter, the broker believes, so current-year revenue estimates are above the consensus.
“We could be more constructive on our recommendation for IG in the event of a second lockdown or a special dividend.”