UBS Stock And IG Group Shares For Higher Rates And Trading Volatility

Global markets are being pulled in new directions as higher interest rate expectations outside the U.S., stubborn inflation pressures and war driven energy shocks reshape the cost of money. That creates fresh risk, but also fresh openings, for stocks tied to repo, securities finance and prime brokerage activity. This article explains how those forces connect to three individual stocks and why their exposure to this news may warrant closer attention at this time.

The stocks covered below are just a starting sample, and the full screen surfaced 16 more companies with equally detailed and potentially compelling repo, securities finance and prime brokerage narratives that are not discussed here. To see the wider opportunity set and start identifying your own highest conviction ideas, go straight to the Global Listed Repo, Securities-Finance and Prime Brokerage Providers screener.

UOB-Kay Hian Holdings (SGX:U10)

Overview: UOB-Kay Hian Holdings is a Singapore headquartered brokerage and wealth manager that earns fees and interest income from stockbroking, futures and options trading, margin financing, structured lending and corporate finance work for both retail and institutional clients across Asia and selected global hubs.

Operations: UOB-Kay Hian generates about S$722.9 million in revenue primarily from securities and futures broking and related services, with Singapore and Hong Kong its largest reported markets by geography.

Market Cap: S$4.3b

UOB-Kay Hian sits at the heart of trading, margin financing and structured lending. These areas can become more active as rising global interest rates and cross asset volatility drive demand for collateralised financing and derivatives. Earnings have grown around 11.2% per year over 5 years and the stock trades on a P/E below both the Capital Markets industry average and peers, even though it is priced above one DCF estimate. At the same time, investors need to weigh a funding mix that relies on higher risk external borrowing and a dividend that is not well covered by free cash flow. The mix of growth, valuation and funding risk makes UOB-Kay Hian a stock worth a closer look in this repo and securities finance focused screen.

UOB-Kay Hian’s 11.2% annual earnings growth over 5 years and a P/E below sector peers raise the question of what the market might be missing about its repo and margin engine. Before you decide where the upside or funding risks really sit, go through the 3 key rewards and 1 important warning sign.

Build your own repo and margin shortlist

UOB-Kay Hian Holdings and the other two repo and prime brokerage stocks in this article all came from the same screener, but the real value for you is tailoring the filters. Use our flexible Screener to blend valuation, growth, balance sheet, risk and dividend criteria, or jump straight into our curated Investing Ideas.

IG Group Holdings (LSE:IGG)

Overview: IG Group Holdings is a London based fintech company that gives retail and professional clients access to online trading and investing, from contracts for difference, options and forex to stocks, ETFs, mutual funds and even cash crypto, backed by rich research, education and live content through its IG and tastytrade platforms.

Operations: IG Group generates about £1.17b in revenue primarily from brokerage activities across derivatives and listed markets.

Market Cap: £4.5b

IG Group sits squarely in the cross-currents of rising global rates and higher volatility, which can lift interest earned on client cash and demand for derivatives while also testing funding resilience and regulation around leveraged products. The company combines high profitability, including a 42.3% net margin and 25.7% ROE, with a 3.54% dividend and ongoing buybacks. Yet it trades on a single digit P/E and at a discount to one cash flow estimate. At the same time, all liabilities are external borrowings, there was a large recent one off gain and regulators continue to scrutinise complex products, so investors who want exposure to this trading and financing engine need to weigh those rewards against the structural risks.

IG Group’s combination of a 42.3% net margin, 25.7% ROE and a single digit P/E suggests something in the story is not fully priced in. Run through the 5 key rewards and 1 important warning sign to see what might be masking the full picture.

UBS Group (SWX:UBSG)

Overview: UBS Group is a global wealth manager and bank that provides financial advice, lending, trading and investment products to private, corporate and institutional clients through its Global Wealth Management, Personal & Corporate Banking, Asset Management, Investment Bank and Non Core and Legacy segments.

Operations: UBS Group generates most of its revenue from Global Wealth Management at about $27.4b, followed by the Investment Bank at about $13.8b and Personal & Corporate Banking at about $9.3b, with smaller contributions from Asset Management and other segments.

Market Cap: CHF133.3b

UBS Group gives you direct exposure to one of the largest global wealth franchises at a time when higher and more volatile interest rates can lift earnings power in securities lending, prime brokerage and collateralised financing. The stock is trading below one fair value estimate. Analysts expect earnings growth and the bank reports rising profit margins, integration gains from Credit Suisse and a multi year buyback program. That opportunity comes with real questions, including heavier regulatory capital demands, reliance on higher risk wholesale funding and a recent $4.6b one off loss plus fresh compliance fines in the U.S. If you want rate sensitive repo and securities finance exposure backed by a broad wealth engine, UBS is a complex story that deserves closer scrutiny.

UBS Group appears to be a powerful wealth engine, and its valuation and integration story may not be fully appreciated. Before the Credit Suisse merger and repo exposure are dismissed as known quantities, read the 3 key rewards and 4 important warning signs

Seeking Fresh Alternatives Beyond These Stocks

Markets move fast and the best breakout ideas often fly under the radar for now. Check these fresh lists before momentum is caught by the crowd and act now.

• Target resilient cash generators that can keep moving even when sentiment drops by scanning the list of solid balance sheet and fundamentals (435 results) while it still feels under the radar.
• Ride structural shifts in energy, defense and infrastructure by tracking potential long term beneficiaries through the 92 nuclear energy infrastructure stocks before interest really takes off.
• Stay ahead of capital flowing into automation trends by reviewing companies in the 37 robotics and automation stocks while valuations can still reflect early stage momentum.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com