Tuesday 27 November 2012

Is it time to bet on IG Group shares?

IG Group @ 414.10p, -3.60p (-0.86%)

Struggling to understand the anchor ploughing going on with IG Group ahead of its 11 December half yearly update.
It seems to be heading South despite markets tentatively resuming a Northerly direction.

The company has already reported on the first quarter and cited the comparison with August 2011 as a particular exception given the record numbers recorded in that month. 
It also stated that:

"The first quarter of any financial year is normally the lowest revenue quarter for IG, with the prior year an unusual exception to this. The group continues to face tough comparatives at the start of the second quarter, with September 2011 the second highest revenue month in the history of the company. The group anticipates that revenue this year will, as in most years, be weighted towards the second half." (http://www.iggroup.com: IG GROUP HOLDINGS PLC Interim Management Statement).

So we can't anticipate any improvement until we move into 2013.
The July and September sells by the Chairman, Jonathan Davie, and Chief Operating Officer, Peter Hetherington probably haven't helped sentiment either.

The threats seem to be coming from economic pressure on European revenues given the ongoing weakness in this area, and the potential threat of a tax being imposed upon all financial transactions which could affect IG's business:

"The European Union financial transaction tax (EU FTT) is a proposal made by the European Commission to introduce a financial transaction tax (FTT) within the 27 member states of the European Union by 2014. The tax would impact financial transactions betweenfinancial institutions charging 0.1% against the exchange of shares and bonds and 0.01% across derivative contracts." (http://en.wikipedia.org: European Union financial transaction tax).

But, assuming that IG transactions fall under the derivative side and the 10 supporting countries (the UK isn't one of them), are all within IG's business doesn't 0.01% seem small enough to be accommodated between IG and its clients given that rivals would also be affected.
To which, I have to say, possibly naively that I am not overly concerned about given the company's shrewd, and prudent financial management, and balance sheet strength. Particularly with cash balances jumping to £285m as at the July full year update (IG Group beats forecasts. What storm clouds?).

If it wasn't for that being left in the dark feeling I am really tempted to top up my portfolio with more IG given its forecast pe ratio of 11.12 times and forecast dividend yield of 5.5%. Underlying this is the company's market leading position (http://www.prnewswire.com: IG Extends its Lead as the UK's No.1 Spread Betting and CFD Provider), and a healthy balance sheet.

My sensible head says to wait until the 11 December update, expect it to disappoint and then top up ahead of a possibly better second half.

On the other hand it could be oversold now?

But then again, at 157.32p, there is also Vodafone to consider.

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