After last weeks move to unpeg the Swiss franc from the Euro we have had interim results from IG Group (IGG) today. This Company which helps to facilitate on line trading and which recently moved into stock broking where they have signed up 1700 accounts, 60% of them new clients, had already announced a £30 million hit from this. Overall they benefited from a volatile second quarter in the markets which helped to offset a quiet first quarter, but the Swiss move has taken some of the gloss off of this and meant that analysts have taken a Swiss army knife to their forecasts.
On the back of this they have seen revenues rise by 8% and within this the UK & Australia performed well but they flagged Europe as being disappointing. They also suggest that within this and more generally their mobile Apps need some improvement as they are not seeing good numbers of conversions from downloads to active clients. They are responding to this with the roll out of new apps which started with one for the I-Pad in December last year.
With regard to the dividend there is a confusing picture because of their decision to increase the pay out ratio last year and pay the interim as 30% of the previous years full year dividend. This was explained by the company as follows:
"Accordingly, we have declared an Interim dividend of 8.45p.This is up 47%, for two reasons. Firstly, the increase in the pay-out ratio last year was recognised entirely in the final dividend, meaning that last year's interim dividend was calculated on the basis of the previous lower pay-out ratio. Secondly, we have increased to 30% the proportion of the total annual dividend which is declared at the interim point in the year, where historically this was approximately 25%."
While this seem great news on the face of it there was a sting in the tail from the Swiss Franc move in the current trading and outlook statement. Here they confirmed that the revenue benefit had been offset by these events such that they expect profits and earnings to be hit by this from a combination of market (£12 million) and client credit (£18 million) exposure. Earnings estimates seem to have come down by about 5% so far this month to around 38 pence to reflect this, which is a forecast fall of about 5% year on year. On this the Company finished up by saying:
"If full year diluted earnings per share were to be lower than last year purely because of this highly unusual event, the Board's current intention would be to maintain the full year ordinary dividend at last year's level. Obviously the Board's final decision would take into account all relevant factors at the time."
Summary & Conclusion
So given where earnings estimates have moved to, this suggests to me, in the absence of a bumper second half, that the full year dividend may well now be flat rather than up by 3.2% which is currently being forecast and is slightly disappointing.
With the current 38 pence earnings forecast and an unchanged (perhaps) dividend of 28.2 pence to be conservative, this leaves it on nearly 19x this years earnings with a yield of 3.9% which is only 1.3x covered and which may not have grown this year. While it is a good quality well run business, given this recent hit, which has led them to look at their risk controls, it certainly seems a lot less compelling up here at 720 pence given its exposure to the vagaries of markets and their impact on IG's clients inclination to trade and their finances.