Whilst the services provided by IG Group are probably an anathema to a long term dividend investor, its shares nevertheless merit some attention for those seeking income and growth.
IG Group Holdings plc (LSE: IGG) is a leading provider of financial spread betting and contracts for difference (CFDs). The company was re-floated on the London Stock Exchange in May 2005 after being taken private by the venture capitalists CVC Capital Partners only two years prior. The business was however established in 1974 as the UK’s first financial spread betting company, initially under the name ‘Investors Gold’ Index, as its first service was to allow people to trade the price of gold as an index. Several years later they offered spread betting on the FT30 index although it took until 1995 to become the first UK company to allow spread betting on individual company shares. In 1998, with the advent of the internet, their online dealing platform was launched.
Today IG Group is a member of the FTSE250 with a market capitalisation of £1.5bn. Since the re-flotation in May 2005, the company has seen an impressive growth in revenues, earnings and dividends as seen from the chart below.
Over the 7 year period from 2006 to 2012, net trading revenues advanced at a compounded annual growth rate of 27%, with earnings and dividends per share at a CAGR of 23% and 26% respectively. (Note: ‘net trading revenues’ have been used for comparability – as from the 2011 accounts statutory revenues were grossed up for brokers’ commissions).
The acquisition that went wrong
The obvious anomaly to question in the above chart is the basic loss per share that was reported in 2011.
The reported loss in 2011 resulted from a total charge for exceptional items of some £153m (pre-tax) which largely comprised a write off of the whole of the goodwill in connection with the group’s Japanese business. ‘Goodwill’ is an intangible asset created in the balance sheet in order to account for the difference between the amount paid for a business and its net asset value and accounting standards force companies to constantly review the amount of this goodwill to ensure that it remains “recoverable” i.e. its value is supported by the expected future discounted cash flows from that particular business unit. So whilst a write down of goodwill is sometimes considered fairly…