Daily Stock Market Report (Fri 31st July 2026) - IGG, TW., CHH, MRO

Good morning. The Korean Kospi index rose by as much as 17% overnight, as chip stocks rebounded and investors speculated that the AI trade was back on. Samsung rose by almost 26% while SK Hynix gained almost 30%.

At the same time, Apple missed sales forecasts after reporting that component shortages were having a larger impact than expected. Sales are now expected to rise by 9%-11% in the fourth quarter (June-Sept), compared to consensus estimates of 12%. Apple shares fell in US after-hours trading.

It appears to have been a relatively quiet night in the Middle East, following US strikes on Iran on Wednesday night. However, there are reports that Iran has launched drone strikes on targets in the region earlier today. 

In other news from the region, President Trump says Hamas has agreed to disarm, although details are unclear. Saudi Arabia has formed a coalition of 14 countries aimed at protecting shipping routes in the Red Sea in the face of Houthi attacks.

Finally, the growing trend of AI frontier models going rogue has continued. Anthropic has admitted that its Claude AI models hacked into three other organisations during cybersecurity tests. It’s only a few days since we learned that two OpenAI models had hacked into AI firm Hugging Face during a testing process. Food for thought.

• The FTSE is up 0.5% at 10,947

• S&P 500 is up 0.5% at 7,479

• Brent crude is down 2.1% at $84.70/bbl

• Gold is down 0.7% at $4,075/oz

• Bitcoin is down 0.8% at $64,218

Spreadsheet accompanying this report: link.

Today's report is now complete - sorry not to cover everything of interest today, it was busier than usual for a Friday!

Companies Reporting

Roland's Section

IG group (LON:IGG)

Down 11% at 1,522p (£5.1bn) - Half-Year Results & Proposed acquisition of Underdog - Roland - AMBER/GREEN ↓

(Disclosure: at the time of writing, Roland has a long position in IGG.)

The biggest faller on the Main Market this morning is retail trading platform IG Group. Today’s sell-off follows the publication of the company’s half-year results and news of a $1.3bn acquisition in the US after the market closed last night.

I think the acquisition is probably the main factor that’s sent IG’s share price lower this morning, possibly aided by the suspension of the ongoing share buyback:

I’ll take a quick look at yesterday’s half-year results and then move on to consider the acquisition.

Half-year results summary

IG’s existing businesses have continued to fire on all cylinders this year, aided by market volatility and product upgrades aimed at filling some of the gaps in the group’s coverage (versus newer rivals).

The financial headlines make for positive reading and appear to be in line with expectations.

As expected, trading revenue improved while interest income declined (I've used comparisons with the previous half year, i.e. H2 2025):

• Total revenue up 11% to £642.8m

• Net trading revenue up 13% to £588.8m

• Net interest income down 8% to £54.0m

These figures reflect a big increase in user activity compared to the same period last year, demonstrating the group’s revamped approach to marketing:

• Active customers up 66% to 843.6k (+13% organic)

• First trades up 107% to 121.4k (+74% organic)

• IG is gaining a “challenger position in UK D2C” – the company’s platforms rank seventh by net inflows so far this year with an estimated 8% market share. H1 net inflows were around 50% of opening AuA.

• Total group AUA reached £21.5bn in June (H1 2025: £16.1bn)

This performance dropped through to drive some big movements in profits:

• Reported pre-tax profit down 29% to £227.7m

• Adjusted pre-tax profit up 15% to £291.8m

The main adjusting items required to reconcile these two numbers are:

• Amortisation of of acquired intangibles: £20.5m

• Legal and restructuring costs relating to the strategic review: £16.4m

• Fair value adjustment/impairment charges (see below): £26.2m

• A £19.3m fair value adjustment on Payward Inc stock received as part of the sale of Small Exchange in October 25. Payward is the parent company of crypto platform Kraken, among others.

• A £6.9m impairment to Independent Reserve goodwill reflecting “more challenging cyclical conditions in the digital asset sector”. Crypto trading platform Independent Reserve was acquired for £86.8m in January 2026, so this represents an 8% haircut to the previous valuation.

My feeling is that these items suggest that IG cast both of these deals when crypto valuations were close to their peak.

In the case of Independent Reserve, I wonder if IG has overpaid. Annualising today’s half-year figures suggests IR’s revenue may have declined by 45% since the acquisition was agreed in September 2025:

• Independent Reserve revenue y/e 30 June 2025: £17.7m

• Independent Reserve revenue H1 2026: £4.9m

Profitability, Cash & Balance Sheet: IG’s strong profitability and cash generation have always been key elements of the investment case. Today’s results suggest this remains true. I calculate an H1 operating margin of 38.8% (H1 25: 43%) and free cash flow of £185m, before acquisitions.

However, the group’s balance sheet strength is being reduced somewhat by the impact of the Underdog acquisition.

IG’s pro forma solvency ratio (surplus over minimum regulatory requirements) was 265% at the end of June, but this will fall to “within its 160-200% target range” by the end of 2026, with the current headroom being used to help fund the Underdog acquisition, increasing leverage to an expected level of 2.0x EBITDA.

The target range for the surplus seems adequate enough, as far as I can tell. But the increase in leverage and reduced regulatory headroom mean IG’s balance sheet will not be quite as strong as it was previously.

Strategic review “substantially complete”: today’s acquisition news appears to be the final piece of major news that will result from the company’s strategic review. A refreshed strategy will be presented in October:

Outlook

Full-year expectations are unchanged today, following a number of recent upgrades. This may also have contributed to today’s share price weakness:

Underdog Acquisition

Underdog is a sports betting platform that’s described as the third-largest prediction market operator in the US (behind Polymarket and Kalshi).

It’s undergone a period of rapid growth and is now said to be profitable, at least at an EBITDA level:

Customer activity has also ramped up steadily:

Underdog is described as the “leading daily fantasy sports player” in the US, but is now evolving into a full-scale prediction market operator – a process that’s expected to complete in September this year:

As far as I can see, IG is therefore about to take control of a newly-formed US prediction market operator with an established userbase.

Let’s look at the financial details.

Consideration: the headline value of this deal is $1.3bn, payable in two tranches. There’s also a massive management incentive programme linked to future profitability. IG appears to be paying upfront for hoped-for growth in a large, growing sector of the US market:

• Enterprise value of $1.1bn

• Upfront equity value of $963m, comprising 24.1m new IG shares (c.6% dilution) and c.$380m in cash

• IG will also repay Underdog’s existing debt of c.$160m at completion

• $200m earnout: to be paid on achievement of positive 2026 EBITDA for Underdog

• Separately, there will be a Management Incentive Programme capped at $850m. Achieving this would require Underdog to achieve $400m of EBITDA in 20208 and $700m in 2029.

To reflect the cash consideration, IG expects to end the year with leverage of 2.0x EBITDA. The current share buyback has been paused.

Valuation: what is IG getting for its money? Underdog is fast-growing, but my impression is that it’s only just become profitable. Some valuation data points provided for Underdog today are:

• Net revenue of $466m in the 12 months to 30 June 2026

• Net revenue of $122m and EBITDA of c.$46m in the three months to 30 June 2026.

These figures imply a multiple of c.2.4x revenue for the last 12 months.

If we take a more optimistic view and value Underdog on its performance over the last quarter, then this values the business at 7x pro forma EBITDA (including the $200m earnout). That’s in line with IG’s own valuation of 7.3x EBITDA:

If Underdog’s current profitability is maintained, then the company’s claim that the acquisition will have a neutral impact on EPS next year seems fair to me.

Expected return: shareholders may have to wait three years to enjoy real economic returns from this acquisition:

The Acquisition is expected to be broadly neutral to adjusted EPS in year one, double-digit per cent accretive by year three, and to deliver a return on invested capital in excess of IG's weighted average cost of capital in year three, in line with IG's capital allocation framework.

Strategic Rationale: IG expects Underdog to double its US revenue and dramatically lower the average age of its customer base, tapping into larger and fast-growing markets:

I’m going to stop my analysis of Underdog here, because I don’t think I can add any value to a discussion of this company’s growth prospects.

However, there is one thing I do want to highlight.

Ownership: IG CEO Breon Corcoran was responsible for building the Paddy Power Betfair business and is not afraid of big acquisitions. It turns out that he also already has close links with Underdog:

• Underdog co-founder and CEO Jeremy Levine sold a previous business (DRAFT) to Paddy Power Betfair when Corcoran was CEO;

• Corcoran has “a personal investment of approximately 0.4% of Underdog’s share capital” (worth c.$3.8m).

As today’s slide pack highlights, “the relationship between IG and Underdog’s senior leadership has developed over many years”.

Roland’s view

As others have commented, this feels a bit like the re-run of the acquisition of the tastytrade options trading platform In the US a few years ago (before Corcoran was CEO).

IG is spending a lot upfront and diluting existing shareholders in the hope that it’s buying a fast-growing business that will become highly profitable and provide a larger footprint in the US.

If Underdog delivers on the top end of profit targets, this could prove to be a good deal for IG’s existing shareholders. On the other hand, it may not. I really don’t know – a certain level of faith is required here.

This morning’s 11% share price drop tells me that the market is unsure about the success of this deal. That’s fair, in my view.

Shareholders are getting diluted with only very limited evidence of Underdog’s ability to generate profits. IG will also become more highly-leveraged than it’s ever been during my time as a shareholder.

A second point is that today’s full-year guidance is only in line, apparently ending a recent run of upgrades.

This morning’s fall leaves IG shares trading on 12.5x FY26E earnings, falling to a FY27E P/E of 11.3x.

However, I would suggest there’s some uncertainty about FY27 earnings at this stage, given the acquisition of Underdog, which is expected to complete late this year or early in 2027.

IG is currently my largest and oldest personal shareholding, but I’m not sure if that will remain true at the end of this year. This business is fast evolving into a very different company to the one I originally invested in. I’m not yet sure if it still has the long-term quality and dependability that originally attracted me. I may consider top-slicing at some point to reflect this – potentially after October’s strategy update.

However, it would be unreasonable to suggest these attractions have disappeared entirely. The current momentum in the business also remains attractive, and the valuation isn’t unreasonable, either.

To reflect my mix of views and the increased complexity of the outlook, I’m moving our view down by one notch to AMBER/GREEN today.

Melrose Industries (LON:MRO) 

Down 4.7% at 453p (£5.6bn) - Half-Year Financial Results - Roland - AMBER =

The last time we covered aerospace and defence group Melrose was one year ago, when Graham took a neutral view, speculating that “the current market cap could easily represent fair value”

The market cap at the time was £6.5bn. As I write, it’s £5.6bn, so it looks like Graham was right to be cautious, at least in the near term. It’s worth pointing out the StockRanks have been pretty neutral on this business throughout this period too:

Today’s results have sent the stock down by 5%, with performance affected by a mix of so I thought it might be worth a look at the latest state of play.

Half-year results summary

A look at the financial highlights flags up a somewhat complex picture, with a wide divergence between adjusted and reported profits:

Looking at the adjustments, I’d be inclined to ignore movements in the fair value of derivatives used for forward purchase of currencies by the group. On this basis, I get the following estimate for adjusted operating profit:

• Operating profit up 20.7% to £210m (H1 25: £174m)

This approximation isn’t perfect and it’s worth noting that cash generation remains very poor, with company-calculated free cash flow of just £13m during the half year. Some of this may reflect timing factors. Today’s guidance is for full-year free cash flow of £150-£200m, excluding the one-off costs relating to the Garden Grove incident, which I’ll come to shortly.

Trading commentary: Melrose’s operations are divided into two segments, Engines and Airframes.

• Engines: revenue up 19% to £896m with adjusted operating profit up 21% to £303m

There’s strong demand for new aircraft at present and Melrose reports strong growth in both OE and aftermarket revenue, which rose by 23% and 15%, respectively. This result supported an adjusted operating margin of 33.8%.

The company says it signed multi-year contracts for fan blade repairs with both Rolls-Royce and Pratt & Whitney and is expanding its manufacturing capacity at plants in Sweden and North Charlestown (US).

• Airframes: revenue up 4% to £977m with Defence (+14%) and Civil (-1%). Adjusted operating profit fell by 1% to £62m with a margin of 6.3%. Margins excluding Garden Grove were 7.2%.

Management reports “strong defence momentum” and flags up projects including “an uncrewed aerial vehicle demonstrator” and work with Anduril and the UK MoD. Melrose is also involved in the delivery of “structural components” for the prototype of BAE’s Collaborative Combat Aircraft, Brontanax.

In Civil, the company says demand should be underpinned by strong orders for new Boeing and Airbus aircraft.

Garden Grove: the company had what’s described as “a thermal incident” affecting a chemical storage tank at its GKN Aerospace Garden Grove facility in the US in May. This resulted in the temporary closure of the site and the evacuation of the local area.

This site produces aerospace-grade acrylic used to manufacture “transparencies” for major defence and civil platforms, such as passenger cabin windows.

Production has since restarted but is running at 50% of normal levels until ongoing work with customers and regulatory authorities is completed. This is resulting in a £6m monthly reduction in revenue, operating profit and cash flow.

In addition to this, the company expects exceptional costs of c.£25-30m in H2 2026.

Outlook

Commentary on trading seems broadly positive and 10% revenue growth appears to be in line with consensus expectations for this year.

Full-year guidance from the company is unchanged today, excluding Garden Grove:

• Revenue between £3,750, and £3,950m (consensus £3,847m)

• Adjusted operating profit of £700-£750m, with a 19% margin at the mid point

• Free cash flow after interest and tax of £150 to £200m

The eventual impact of Garden Grove remains uncertain, but based on today’s report I would not be surprised to see the total bill approaching £50m.

Even so, today’s guidance seems broadly reassuring to me. I’d also note that consensus forecasts, which I see as a positive sign:

Roland’s view

Based on consensus earnings forecasts, Melrose shares don’t look too expensive to me:

There’s a strong upward trend to earnings and as far as I can see there is no change to 2027 expectations today.

However, the company’s profits appear to be heavily adjusted, so I am inclined to use free cash flow guidance as a way of sanity checking the quality of expected earnings.

Taking the mid-point of today’s guidance suggests 2026 free cash flow of £175m. That’s equivalent to a 3.1% free cash flow yield at the current market cap. That’s not outrageous, but it’s a lot more expensive than the P/E of 11 would suggest.

A 3% free cash flow yield is also more closely aligned to the 2% dividend yield – I often find that dividend yield can provide a useful secondary valuation measure, as it’s more likely to be tightly linked to cash generation than adjusted earnings.

On balance I’m going to maintain Graham’s previous neutral view today. There could be an opportunity here, but I’d need to do more research to understand it. On this initial inspection, I’m inclined to think the current valuation is probably quite fair.