If you follow me on Twits or have realised that on my Homepage there is a list of Changes to the Websites which also includes my Trades fairly soon after they happen, before I have got round to sticking them on the ‘Trades / Portfolios’ Page, you may have spotted that I bought more igIndex IGG Shares this morning at 743p a pop.
As ever, time is limited so I will try and do this as short and punchy as I can - some Readers like this briefer style so I will probably only do Deeper Dives on smaller and unusual Stocks and when I wish to know more myself so I find the digging really helpful.
Why I bought
- Clear Market Leader - Stuart Wheeler who founded the Company actually brought the concept of Financial Spreadbetting to the UK - I think that was back in the 1980s so the record of achievement since then is legendary.
- A constant Uptrend. Investors often like a nice 3 year Uptrend or something (I do myself for heaven’s sake) but with this Stock you essentially get an Uptrend that has been in existence since the Company Listed - and that must have been a very long time (and a lot of big dividends !!) ago.
- 4% Divvy Yield for next year and big Cash Pile to back it up - that is a nice Divvy in this low yield environment and it looks very sustainable - their record of rising Divvy Payments is superb.
- Recent move into Stockbroking where they offer Share Dealing Services as well as Spreadbetting - this seems to be growing very nicely. In addition, I noticed that they are due to start offering ETFs (Exchange Traded Funds) also. They even allow Customers to use their Share Accounts to act as Collateral (Margin or Deposit) for Spreadbet Trades - although obviously this will be a risky business for the Punters if they are not very careful.
- I have been a customer of igIndex for probably 10 years and I have always been very impressed with what they do - particularly their availability and ease of use. Mind you, the PC screen takes some getting used to !! The App is brilliant.
- The P/E is quite high but sometimes you have to pay up for Quality - it is certainly not excessive and I think IGG will be a good Bedrock type Share to do a nice ‘Steady Eddie’ role in my Portfolio. I already hold lots in my Income Portfolio so I am just taking advantage of the recent pullback to add to my Investment.
- They are doing mucho expansion around the World - they recently opened an office in Dubai and are about to open one is Switzerland I think.
- IGG is quite resilient in the sense that if and when the Economy goes a bit smelly, Volatility in Markets increases and Traders tend to be much more active - this is obviously a positive for IGG results.
- The Company has a lot of Cash and a very strong Balance Sheet - must be fair odds on a Special Dividend at some point in the future I would expect.
- Forecast Growth Rate for next 3 years in EPS etc. is very strong.
- The Shares got whacked on Results day - this was probably because the CEO Tom Howkins was leaving. I think it’s a strong business (I expect to a large extent it runs itself as long as Management don’t do anything really dumb) and I doubt it’s that big a deal.
- IGG suffered problems when the Swiss Central Bank stopped pegging the Swissie to the Euro - the sudden swing hit many FOREX traders who were unable to pay for their Losses. IGG took a provision for this and hopefully as a result they will have tightened their Hedging procedures etc. to avoid a repeat. There is a Risk that former Customers who suffered in this event could sue IGG - however, I am sceptical with regard to how successful they would be and I would expect IGG have Liability Insurance against such an event, and if this is not the case, they have the Financial Strength to get over it anyway.
- Regulation is always a problem around these kind of complex Financial Services businesses. However, let’s be real, we have come through probably the most intense period ever for the Industry with regard to New Stricter Regulation following the Credit Crunch - it is likely the focus on this eases.
- I am quite amazed that IGG has never been taken over. It is obviously a cracker of a business and at £2.7bn it is not too huge to swallow for many a Financial Group. I guess the Directors hold big Stakes and have blocked any Sale in the past - it must be likely that it will be nibbled up though.
- In the recent Trading Update, there was a hit to Profits from the New Offices abroad - nothing to worry about in my view, it is building for the future, and that is what interests me.
The Screenshot from ShareScope below shows in the Top Right Hand Corner the Historic Results - I include this to show the record of achievement in recent years.
The ScreenShot below shows the Forecasts for the Next 3 Years. If you look at the ‘Norm EPS (p)’ figure for ‘May 2016 Forecast’ it is 44.19p (these are Consensus Forecasts). At my Buy Price of 743p this gives a Forward P/E of 16.8 for Next Year (743p divided by 44.19p).
If we go forward a year, the EPS is 49.86p and at my Buy Price of 743p this gives a Forward P/E of 14.9, 2 years out.
This really is not bad value at all for a Quality Stock with Market Dominance.
In terms of Divvys, the Forecast Dividend for 2016 is 30.891p which at my Buy Price of 743p gives a Forward Divvy Yield of 4.2% (30.891p divided by 743p then expressed as a Percentage).
In the Following Year, the Divvy Yield should rise to 4.7%.
(at this point, your supposed to say “hey, Wheelie, that’s chunky dude !!” - go on, say it out loud, no one else is around on that Bus your sat on………)
For very Short Termers, I suppose a Target around 800p is on the cards.
For more relaxed Investors, a Target of 900p or so probably makes sense.
Taking things with a bit more of a WheelieDealer Long Term head, I see no reason why a stock of this calibre could not justify a P/E of 20. So, if we take the Forecast EPS for 2017 of 49.86p and slam it on a P/E of 20, we get near 1000p.
To be honest, I sold my Shares that I had in my normal Trading ISA a few months ago and then had terrible ‘Seller’s Regret’. I shouldn’t have sold and I think that the right approach with this Stock is just to hold it forever (barring some totally unexpected disaster which radically changes the business - but this would be out of the blue). On this basis, it could be 1500p in 5 years time - who knows? It’s not hard to imagine 60p of EPS in some years, slam this on a P/E of 20 and you get 1200p. It’s not utterly daft.
Right, why did I buy it now?
As ever, the ScreenShots from ShareScope are as they confronted me last night when I made my Decision to buy more (Tuesday 28th July 2015). I will repeat myself for New Readers (thanks for bothering to read this all of you), but I always like to make Cool, Calm, Objective, Rational, Spock Like Decisions out of normal Market Hours. I find the Ups and Downs and shenanigans of the Market Day can hugely affect my mood and I like to make Decisions objectively from the Charts and I build up to these Decisions over many Days if not Weeks.
Starting with the Long Term (as is always the correct way to view Charts) - this is a 8 year Chart or something daft - as you can see, it just goes up !!
BEGINNERS TAKE NOTE - YOU WANT TO BUY STOCKS WITH CHARTS LIKE THIS !!
RESISTANCE BECOMES SUPPORT and SUPPORT BECOMES RESISTANCE.
Note how the Price has moved up off the Blue Line as it now acts as Support. The Green Arrow is pointing to the 200 Day Moving Average - this is a Long Term Moving Average and Prices tend to revert to this line before moving up again (unless it is in a Downtrend, when they tend to move up to the line and then fall back again.)
In this case, the RSI is around 43 but crucially it has moved up from around 40 - this is a good sign that the short term down move is coming to an end.
The Green Arrow points to where we were as at Close of Play last night - it is too early to be definitive, but it is interesting for me as a Potential Buyer at that point in time, that 725p was clearly acting as Support this week also.
Right, that’s it, laters, wd