Friday, 22 August 2014

IG Group - New Portfolio Purchase

IG is a global leader in online trading, providing access to over 10,000 financial markets - including shares, indices, forex and commodities.

Established in 1974 as the world's first financial spread betting firm, IG's aim is to become the default choice for active traders globally. It is the world's No.1 provider of CFDs and a global leader in forex. It has recently announced it will be launching its new execution-only stockbroking service in late 2014.

With a current market cap of around £2.2bn, it is a member of the FTSE 250. IG has offices across Europe, Africa, Asia-Pacific and the US, where it offers limited risk derivatives contracts via the Nadex brand.

I held IG Group for some time in my SIPP, however in 2012 it was sold along with some other individual shares to release funds for the tax-free lump sum. Since that time it has remained on my watchlist with a view to repurchase in my ISA.

The company issued full year results last month which appeared to be well received. Of course, the tempter for the income investor is the 21% uplift in the dividend to 28.15p which gives a yield of 4.7% at the current share price of 598p. The increase is partly due to increasing the payout ratio from 60% to 70%.

IG Group is looking to Switzerland and Dubai as its next two markets, but seems particularly excited by the upcoming launch of its UK stockbroking service. IG says it “will offer clients the ability to use their share portfolio as collateral to support their trading with CFDs or spread betting”, before then moving on to target the wider share dealing market.

Now in my earlier attempts to make a profit from the markets, I tried out spreads - index, shares, commodities and forex - but gave up after around 6 months as I could never seem to find a consistent advantage. I really should have known better - my grandad was a bookie and he would often point out that when there is one window to pay out winnings and three windows to take bets, the bookies were always on a winner!

One of the big attractions of IGG from a valuation and risk perspective is its balance sheet. Not only does it have a net cash position, but it has the ultimate version of net cash, namely no debt at all. Own funds increased 13.5% to £487.3m (2013: £429.3m).

The Company are constantly trying to maintain a competitive advantage - Warren Buffett refers to this as ‘moats’ - with its constant innovation through investment in new technology. In this regard, Tim Howkins, Chief Executive, commented:
"This was a good year for IG, with growth in revenue, profit, cash generation and dividends. Importantly, we also made strong progress on our strategic objectives, designed to deliver the next phase of our growth.
We will continue to make significant investments in initiatives, this year and beyond, to deliver sustainable growth into the future.  In particular, the imminent launch in the UK of our stockbroking service, as part of our comprehensive share-trading offering, positions us well to address the needs of a much broader audience of active traders."

From past experience, the share price can be volatile so I would not be surprised to see some weakness over the coming weeks however. I am not great at the timing of my purchases but I am hoping IGG will continue to deliver a growing return over the longer term.

The final dividend of 22.4p will be paid 18th November  (xd is 23rd October).

As ever please be sure to DYOR!

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