I was tempted back into the market yesterday by IG Group which has continued to pull back since its most recent results (IG Group beats forecasts. What storm clouds?).
At the time the shares stood at 450p or so but are now in the 420's.
They have actually slipped a bit more since I bought yesterday but c'est la vie.
Recent falls now put the shares on a forward pe of 11.1 and a consensus forecast yield of 5.4%.
The current doubts don't appear to be anything new given that certain banks/brokers have always attempted to call time on the company's growth after each set of results.
But the company is clearly still a leader in its field and more importantly appears to be conservatively managed with a high degree of focus on shareholder returns with a dividend that has increased 87% in the 5 years to 31 May 2012, and whilst maintaining a dividend cover in the region of 1.7 times.
This could arguably be higher, and so give more protection, but given the backing of its cash reserves, debt free balance sheet, and the fact that it has maintained cover in this region for many years now bodes well and illustrates a good understanding of the business.
Revenues have increased 123% over the same period and excluding last years blip due to the value of the Japanese acquisition being written down (Has the sun set on IG Index?), profits before tax have increased by 91.48% over the 5 years to 31 May 2012
Cash has reduced over the same period though, as the company has expanded internationally and invested in technology but as at 31 May 12, was back on a healthy one year uptrend at £228m (2011:£124m), contributing to a a strong debt free balance sheet.
Taking a look at the share's relative performance this year (Chart screenshots courtesy of Digitallook.), I can see that they are currently underperforming the FTSE 100 by around 16% (RH scale in the first chart), and its own index, the FTSE 250 by around 26% giving them some discount to recover in the short term to catch the market average.
Relative to FTSE 100:
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| Click to enlarge, close to return. |
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| Click to enlarge, close to return. |
Obviously, a lot depends on Europe's future health (as everything seems to currently), and there are questions over growth.
I actually think that the 2 go hand in hand and if Europe (and other markets) recover, then growth will return as confidence in economies and consumers return.
In terms of the explosive growth that the company has experienced in the past, and analysts want going forward, this is probably now reliant on US markets opening up to its products.
Currently, I read that the company's 2 main products: spreadbetting; and contracts for difference, are illegal in the US (http://en.wikipedia.org: IG Group), but that the company does have a strategic foothold with a US based electronic market place allowing consumers to trade derivative products.
And, whilst the purchase for me is a top up on my existing long term holding (July 2012: Portfolio update.), I can still see enough to suggest a potential 20% upside plus a reasonably safe 5% dividend (if anything can be termed safe these days).
Fingers crossed.
Related posts:
- IG Group beats forecasts. What storm clouds?
- Has the sun set on IG Index?
- http://en.wikipedia.org: IG Group
- July 2012: Portfolio update.
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