Daily Stock Market Report (Thur 24 July 2025) - VCP, JSE, TET, IGG, PEB, MAB1, JDG, RCH, AJB, SYS, EMR, SFR

Huge thanks to Roland and to all of you for keeping the show on the road yesterday as I was under the weather - the report had my name on it, but Roland was editing it!

Anyway, let's see what we've got today.

Wrapping it up now, thank you.

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Companies Reporting

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Graham's Section

IG group (LON:IGG)

Up 6% to 1120p (£3.9bn) - Results for the financial year ended May 2025 - Graham - GREEN

(At the time of publication, Graham has a long position in IGG.)

Quite pleased to see the positive reaction to this update, as IG is an important share for me (currently 13% of my portfolio).

Some highlights from these results:

• Revenue +9% to £1,075m.

• Adj. PBT +17% to £535.8m, margin improving from 46.2% to 49.8%. This is ahead of expectations of £523.5m.

• Actual PBT +25% to £499.2m.

Net interest income is included in the revenue figure and was down 6% as rates fell.

Without that headwind, revenue growth would have been higher - “net trading revenue” was up by 12%.

Capital returns: total dividend increases to 47.2p (from 46.2p), and there’s a new £125m buyback, “subject to share price performance and other demands on capital”. The amount spent on buybacks during FY25 was £235m.

Buybacks have helped to further boost EPS: for FY25, earnings per share rose 26% to 114.1p.

Customer numbers are distorted by the acquisition of Freetrade in April. Organically, active customers increased 5%.

Freetrade “performed strongly” in FY25, with assets under administration up 38% and revenue up 22%, but I don’t see it as material yet. Revenues were £29m, with only a small portion of this being generated after the takeover.

Despite the Freetrade acquisition, IG’s sprawling empire of small businesses has been curtailed by the CEO who joined in early 2024:

Exited multiple legacy and sandbox initiatives not delivering acceptable returns, including Spectrum, Brightpool, Raydius, Bad Trader, Small Exchange and our commercial operations in South Africa.

The core product has been improved with “TopTrader” (showing the positions held by IG’s most successful traders) and with a cash crypto offering. In the US, they are trying to simplify tastytrade (the options trading platform) and broaden its appeal. Accounts can be funded with crypto “stablecoins” and the range of tradable coins has expanded from 4 to 23.

CEO comment:

"In the first year implementing our strategy, we have made good initial progress delivering on our priorities of improving our product, embedding a high-performance culture and enhancing efficiency. I am pleased that we are getting closer to our customers and accelerating product velocity which is translating into stronger customer acquisition…

Looking forward, we are confident of meeting market expectations for total revenue and cash EPS in FY26. Beyond FY26, we expect total revenue to compound in a mid-to-high single-digit percentage range per annum on an organic basis, accelerating within this range over time, with cost discipline."

Estimates: thanks to IG for posting this on their website.

I note that PBT/PAT are expected to dip in FY26, before bouncing back in FY27. EPS is more resilient, presumably due to buybacks:

Graham’s view

As Breon Corcoran says, these FY25 results have benefited from “supportive market conditions”, with plenty of hot-button issues to get people trading over the past.

But that’s one of the reasons I’ve been invested here for so long: I enjoy holding shares in a business that benefits from market turmoil, as it gives me a natural hedge against anything else I might be holding.

Nothing in these results changes my view that this is an incredibly high-quality business, with fabulous cash generation (£491m of operating cash flow), return on equity (c. 20% again), and shareholder orientation with surplus cash being delivered to us on a regular basis.

If I was to put a very sceptical hat on, I could point to tastytrade as a source of risk. For a start, the seemingly relentless bullishness in the United States may have pulled more retail traders into the market than you’d get in tempered conditions.

Secondly, the news that customers there are funding their accounts with “stablecoins” could be viewed as a red flag. The phrase “stablecoin” is itself a misnomer in my view, with a claim to stability that I don’t believe is proven.

But… I am glad to have some exposure to crypto in this way. It seems to be one of the least objectionable ways to gain exposure to this asset class. If the boom continues, tastytrade will do well. If it turns out to be “a load of old cobblers”, as some of us suspect, then hopefully the hit to IG will be limited.

I’ve been holding this share for many years. For the longest time, it traded within a familiar range, but more recently has been breaking out of this range.

I think this is deserved: even at the current higher level, it trades on a P/E multiple of only 10x.

For a market leader with, as I’ve suggested, very high quality metrics, I think it still offers great value here.

The StockRanks don’t disagree, giving it a QualityRank of 100 and a StockRank of 91 - a Super Stock.

I’ll reiterate that I think the new CEO has a terrific background, having worked in the banking industry and then for many years at Paddy Power and then Betfair. I think he instinctively understands what he is dealing with at IG.

It will come as no surprise to readers that I’m GREEN on this.

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Mark's Section

Pebble Beach Systems (LON:PEB)

Up 56% to 14p - Trading Update - Mark - AMBER

It's a huge rise this morning from this microcap company and it is worth starting with a warning. The majority of the rise here occurred in the first 15 mins of trading with only around £50k worth of shares traded. Illiquidity here has certainly helped the rise. For the first three days of this week only £3k’s worth of shares traded in total. Anyone buying into this company on this rise needs to believe in the long-term future of the business, since liquidity tomorrow could be zero.

Here’s the cause of the rise:

The Group entered H2 25 with a strong order book giving the Board confidence in delivering profitability materially ahead of market expectations1 for FY 25 and into FY 26.

There’s only one broker here, Cavendish, so it is easy to quantify the impact as they say:

Upgraded forecasts reflect improved cost base visibility: adj PBT upgraded +27% to £2.4m (was £1.9mE) and adj dil EPS upgraded +27% to 1.9p (was 1.5pE) in both FY25E and FY26E

However, this material beat appears to be almost entirely driven by cost-cutting:

In January 2025, the Group announced strategic plans to focus on existing core capabilities as a broadcast solutions specialist, including a significant reduction in overhead and R&D costs under a process which commenced and concluded in H1 25.

While removing unnecessary cost is clearly a good thing for the business, it seems they have also significantly reduced investment into new products. Revenue is growing, but not at particularly impressive rates:

The Group expects to report increased revenues of c.£5.9m for the Period (H1 24: £5.3m) driven by the timing of project order intake and the continued growth in SLA revenue. Revenues in the Period comprised project revenues of c.£2.6m (H1 24: £2.2m) and recurring support revenue of c.£3.3 million (H1 24: £3.1m), both up year on year.

This makes this gain likely to be a one off. EPS forecasts are flat from FY25-26 at 1.9p. Even after today’s rise this is only a P/E of around 7, making it cheap, but perhaps not out of place if flat EPS is expected. This has always been a cheaply-rated stock because of the debt that they had so this is also good news:

At 30 June 2025 net debt was £3.3m (H1 24: £4.8m) with bank debt continuing to be paid down from the Group's improving operating cash flows. Following the strategic amendments announced in January 2025, the Group has greater certainty of cashflows and re-iterates the expectation of delivering annualised cash savings of c.£2.0m, with an expectation of moving to a net cash position during 2026.

My calculations show that this is currently on a EV/EBITDA of around 5, which again looks cheap for a software business, but again only if they can grow in other ways apart from cost-cutting.

Mark’s view

A stock with a materially ahead statement and a large one-day rise would seem to fit Ed’s criteria for a further upwards drift. However, in this case, it doesn’t meet the SR>70 criteria:

I am also a bit more cautious than usual given the illiquidity and that the gain here has come from cost cutting (including reducing new product development) rather than an unexpectedly strong top line. Balancing this is that the debt is largely being paid down through internally generated cash flow and the rating isn’t expensive. I’ll go for AMBER overall.

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Treatt (LON:TET)

Down 22% to 200p - Trading Update - Mark (I hold) - BLACK/AMBER

It is another profits warning here:

Treatt has continued to face trading headwinds since the announcement of the interim results on 13 May 2025 which will affect the performance for the full year. As a result, we now expect revenue of between £130m and £135m and profit before tax and exceptionals (PBTE) of between £9m and £11m, lower than previous guidance.

They helpfully quantify this:

Previous guidance at 10 April 2025 was £146-£153m revenue and £16m-£18m PBTE

They didn’t give us a similar breakdown at the previous profits warning, and unhelpfully, we don’t have access to broker’s notes here. I always feel that when mid-caps see their share price collapse to become a small cap again, they should be forced to employ a small cap broker (or at least commission some paid for research). We are largely flying blind here.

My basic maths says they did £3.6m PBTE in H1, reporting around 4.5p EPS, so they should do 12.5p EPS for the full year and the middle of their current guidance range.

The reasons given are simply a continuation of previous trends:

· Lower demand in Heritage from sustained high citrus oil prices affecting buying patterns, and leading to reformulation. Although citrus oil prices have started to reduce more recently, this has continued to impact both short-term buying patterns in value added citrus products and citrus margins. We expect a reduction of this adverse impact as citrus oil pricing normalises.

· Consumer confidence in the US, combined with geopolitical and tariff uncertainty in the US was impacting the overall beverage market in North America. This has persisted, reflected in extended softening of demand.

After the last trading update, we got a buyback, presumably intended to balance liquidity in the stock. However, with hindsight, all they appear to have done is wasted shareholders' money buying back stock at a premium to today’s price.

The £5m share buyback was completed in May 2025. The balance sheet remains strong, and we now expect to report a low net debt position at the year-end as a result of the expected lower level of profitability for the period (compared to previous guidance of £1-3m of net cash).

This level of net debt shouldn’t worry investors as this is still a profitable business, although at reduced levels, and gearing levels will be modest compared to most companies of a similar size.

Valuation:

Based on my 12.5p EPS estimate and 200p share price the stock trades on a 16x earnings, not cheap in the current market. I have no idea what the FY26 forecasts now look like but they would be taken with a pinch of salt at this stage anyway.

What is interesting is that I make the current P/TBV 0.85 based on the H1 results. This looks low for a company that is still profitable and is a previous stock market darling that fund managers would have put in their “never-sell” quality compounders portfolio a few years ago.

The risk is that that majority of those assets are their manufacturing facilities, and inventory:

These may not provide much downside protection in a liquidation scenario, but we are a long way from even considering this. Instead, my assumption is that management will either make these assets productive again or someone else will.

Mark’s view

I’ve held my nose this morning and bought some shares below £2. While there is certainly a risk that there is a further profits warning to come, and management haven’t covered themselves in glory with a badly-time buyback, the discount to TBV suggests that there is value here. If the share price dropped much further, another larger food additives business may see the opportunity to buy the company for little more than the value of their assets. If instead management deliver on their pipeline and in a couple of years EPS is back to the 30p level that was forecast prior to these warnings, then the share price is likely to be back around the £5 mark. This makes the risk-reward look favourable to me from these levels. Roland had this as AMBER at 271p when it was last reviewed on the DSMR, with the outlook lower but the share price also lower, I am of a similar view today.