IG Group reported back to the market yesterday with its full year results for the year ending 31 May 2012.
The company improved its profits to beat consensus estimates on sales that matched expectations.
Reported highlights:
• Net trading revenue up 17.3% to £366.8 million (2011: £312.7 million)
• Profit before tax (1) up 13.8% to £185.7 million (2011: £163.2 million)
• Diluted earnings per share (1) of 37.54p up 15.3% (2011: 32.57p)
• Cash generated from operations of £140.7 million, after tax (2011: £136.7 million)
• Final dividend per share of 16.75p. Total dividend per share for FY12 of 22.50p, up 12.5% (2011: 20.00p)
• Dividend per share represents 60% of diluted earnings per share
• Strong, debt free balance sheet, with a 330% excess over regulatory capital resources requirement (2011: 294%)
• Solid growth in active clients and revenue per customer
(1) The comparative profit before tax and diluted EPS and the percentage increases calculated thereon are based on an adjusted measure excluding the amortisation and impairment of intangible assets associated with the Group’s Japanese Business. Both profit before tax and diluted EPS have been presented for the continuing business, excluding the discontinued Sport business.
Interesting to see the shares fall as they always seem to despite meeting expectations and maintaining a very strong balance sheet with a growing cash holding that now stands at £228m (2011: £124m).
Against this the company has zero long term debt and the total of liabilities repayable within 12 months amounts to £155.8m, significantly less than the current cash holding.
Revenue increased in 4 of the company's 5 trading regions with just the problem child, Japan, falling behind. The company states a belief that Japan has now started to stabilise within a new regulatory environment having achieved 3 successive quarterly revenues of £4m.
The company has previously written down the value of its Japan based operations as reported in its interim statement for the period ending 30 November 2010 (Has the sun set on IG Index?).
Through its business managing financial transactions the company is exposed to a number of regulatory requirements one of which is the Financial Services Compensation Scheme levy.
Which seems ridiculous given that it is clearly more related to advice giving/investment selling companies and is in place to protect investors against institutions failing, the most recent trigger being the Keydata bond mis-selling scandal (IG Group: FSCS sticks the boot in!).
Anyway regardless of the justification IG is exposed to the levy with an annual liability estimated to be £5m.
Elsewhere the company also has a Tier 1 Capital Resources Requirement (CRR), of £100.4m. So based upon its assets less liabilities figure of £331m the company has a healthy positive surplus of £231m, or 330.5% of the CRR.
The company also recognises an ongoing risk of a Financial Transaction Tax as discussed by members of the EU.
Although theoretically possible the company believes it to be unlikely.
Jonathan Davie also announced in his Chairman's Statement that 2 long serving Directors are due to step down these being: Deputy Chairman, Nat le Roux and; Director of Corporate Strategy, Andrew Mackay.
Tim Howkins - CEO, commenting on the current trading outlook stated that:
"Revenue in the first six weeks of the current financial period has been lower than the same period last year, as dull markets in this period have presented our clients with fewer trading opportunities. As we have previously commented, comparatives are increasingly challenging for the remainder of the current quarter and the beginning of the next. Against this backdrop revenue this year is forecast to be more weighted towards the second half than historically. Under normal market conditions, we continue to expect modest growth in revenue for the year as a whole. We remain committed to investing appropriately in the capabilities of our business, in technology, marketing and geographic and product development, to position the business for long-term growth. I remain confident in the prospects for the business going forward."
Not just sure I would have called the current environment dull but there you go that's obviously how some see it. But it is a heads up on the start to the current year.
So the World's largest Spread betting company has had another successful year despite setbacks and increasing regulatory fallout.
Significantly it has increased the annual dividend by 12.5% to 22.5p which represents 59.4% of the basic eps figure of 37.9p.
22.5p also represents an 87.5% increase to the dividend since 2008 when the payout totalled 12p.
The company has a stated intent to maintain a payout ratio of 60% based upon the "diluted" eps figure of 37.54p (adjusted for amortisation and impairment of Japan based assets).
The company has a stated intent to maintain a payout ratio of 60% based upon the "diluted" eps figure of 37.54p (adjusted for amortisation and impairment of Japan based assets).
As mentioned previously cash balances have also jumped to £228m, +83% (2011: £124m), as cash generation improved, and there is no long term debt.
With the 2012 total dividend payout amounting to £81.628m (2012 Interim: £20.859m + 2012 Final: £60.769m), the current cash balances add a layer of support should there be further short term headwinds (and despite the 60% payout ratio).
All looks quite conservatively managed then even allowing for the regulatory tightening (FSCS levy, CRR etc).
Further to this the company now stands on a forward price to earnings ratio of 11.63 times which seems very, very reasonable to me.
It also gives little or no premium given the company's eagerness to be transparent (write downs on Japan), and manage itself into a zero net debt position.
It also gives little or no premium given the company's eagerness to be transparent (write downs on Japan), and manage itself into a zero net debt position.
The question over the company these days seems to be one of growth and the forecast 2% increase in earnings per share for the current year doesn't yet satisfy this despite the CEO's remarks that recent success creates tough comparable.
But shareholders' interests seem well represented and the dividend returns seem well supported with the 60% payout ratio and growing cash balances.
The forecast yield stands at an attractive 5.08%.
So despite the growth/no growth question, the company is looking very much like a cash cow. The net debt free Balance Sheet is strong and could be viewed as conservative but these are difficult times and the company looks well prepared to weather it.
The dividend is attractive and the 60% payout ratio gives it a dividend cover in the region of 1.65 times which doesn't seem as conservative as the Balance Sheet would suggest.
The shares seem to have been range bound between 400p and 500p since it reported the write down of its investments in Japan ( Has the sun set on IG Index?), that prompted some analysts to suggest that the company had gone ex growth.
The shares seem to have been range bound between 400p and 500p since it reported the write down of its investments in Japan ( Has the sun set on IG Index?), that prompted some analysts to suggest that the company had gone ex growth.
More recently analysts seem to be holding tightly to company statements that the volatility of recent times has increased company turnover (as opposed to dull markets which have not).
But, at 450p,and slap bang in the middle of £4 - £5, the company is starting to look like a steady, attractive proposition with a higher than average dividend yield.
My personal view is that clients will adapt their thinking and strategies to whatever markets prevail and that sustained growth across the breadth and depth of the company's client base will be more dependent on economic recovery rather than periodic volatility.
IG has been a long term holding in my portfolio (June 2012: Portfolio Update.), which, taken individually has given me an overall gain of 64.51%. 49.8% on the share price plus a further 14.71% from dividends.
But, given that the company has put a strong financial foundation in place and has been range bound for some time now, there is a strong argument suggesting that any doubts and headwinds are sufficiently discounted in the share price.
Which would seem to make it worth considering adding to my holding at 450p (or lower).
As ever patience will be key (range bound with ex/ growth question), whilst the well supported dividend will still reward investors.
That being the case, range bound IG might also be a suitable candidate in an alternative strategy of monthly pound cost averaging (Investment tools: Pound cost averaging approach.).
But, at 450p,and slap bang in the middle of £4 - £5, the company is starting to look like a steady, attractive proposition with a higher than average dividend yield.
My personal view is that clients will adapt their thinking and strategies to whatever markets prevail and that sustained growth across the breadth and depth of the company's client base will be more dependent on economic recovery rather than periodic volatility.
IG has been a long term holding in my portfolio (June 2012: Portfolio Update.), which, taken individually has given me an overall gain of 64.51%. 49.8% on the share price plus a further 14.71% from dividends.
But, given that the company has put a strong financial foundation in place and has been range bound for some time now, there is a strong argument suggesting that any doubts and headwinds are sufficiently discounted in the share price.
Which would seem to make it worth considering adding to my holding at 450p (or lower).
As ever patience will be key (range bound with ex/ growth question), whilst the well supported dividend will still reward investors.
That being the case, range bound IG might also be a suitable candidate in an alternative strategy of monthly pound cost averaging (Investment tools: Pound cost averaging approach.).
Food for thought then.
Related article links:
- http://www.sharecast.com: IG Group beats profits forecast
- http://www.iggroup.com: Results Presentation
- http://www.iggroup.com: IG GROUP HOLDINGS plc Results for the year ended 31 May 2012
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