IG Group - Swiss miss

IG Group: These interims were over-shadowed by last week’s Swiss Franc bloodbath. The initial estimate is that this could be a £30m hit to IG, being £12m of customer goodwill (i.e. cutting them some slack) and £18m of bad debt, although that already appears to be an over-estimate. The silver-lining to this Swiss cloud is that it is as unusual as a Spurs league title. The Swiss National Bank was only forced into this by the imminent start of the EU’s version of QE, a rarity on the scale of the UK’s ERM exit. Investors having seen the collapse of other providers will be reassured by IG’s calm ‘sh*t happens’ response and they may well pick up new accounts from wounded or bust rivals. This would add to some good market positions as IG is already 32% of the UK’s CFD market and 41% of UK financial spread betting, as well as offering forex trading. They are gently expanding their geographic footprint and have, in the UK, started execution only broking. This could become a decent profit stream, but it also acts as a source of warm leads for the CFD/spread betting activities. So the core business looks well placed for growth for some years to come.

Obviously, the year to May 2015 will see eps come down from last year’s 40.2p, due to the Swiss Franc event, to maybe 37p, before picking up to 46p by May 2016. At 745p that is a PE of 20.1x, dropping to 16.2x. The interim dividend is 8.45p and is 30% of the total, making that 28.2p for a yield of 3.8%. This is flat on last year, with the company saying that it will be paid despite the Swiss affair unless anything else happens to make payment imprudent. The normal 70% payout ratio means that for May 2016, 46p would be a dividend of 32.2p for a 4.3% yield. This is a stock that many will shy away from given the transactional nature of revenue generation, but they have now clocked up 40 years. That gives them kudos in an industry prone to fleeting success stories and makes them worthy of consideration. (Neil Cumming^, 20^th January 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower