RBC Capital Markets has backed IG Group Holdings Plc (LSE:IGG) after the sharp fall that greeted last month's acquisition of Underdog, arguing the market has fixated on regulatory risk while ignoring what underpins the deal.
The broker keeps its outperform rating and 1,850p price target, implying 39% upside from 1,371p.
RBC hosted chief executive Breon Corcoran, finance director Clifford Abrahams and head of investor relations Martin Price for a fireside chat following the announcement.
Underdog is the only prediction market platform focused specifically on sport, setting it apart from the broader offerings at Robinhood, Polymarket and Kalshi, and it skews younger than online sportsbook customers.
The deal lifts IG's US customer numbers tenfold and more than doubles US revenues, with daily fantasy sports and prediction markets accounting for around 25% of pro forma revenue.
Management sees the price paid, roughly 2.4 times trailing revenues excluding contingent consideration and incentive payments, as attractive against the 10 times multiples reached by more established prediction market names.
Around half the maximum value is contingent on earnings delivery, which RBC views as a structural hedge against the regulatory debate now running between state and federal authorities in the United States.
Management expects that argument to reach the Supreme Court, with resolution inside 24 months, and believes Underdog can pivot to daily fantasy sports, sportsbook or financial products if prediction markets are constrained.
The forthcoming NFL season is seen as a one-off customer acquisition opportunity, which implies heavier marketing spend in the second half before the focus shifts to profit from 2027.
RBC forecasts adjusted earnings per share of 128p this year, putting the shares on 10.7 times, in line with the seven-year average.
