It was always obvious that the volatility associated with the EU referendum would boost profits at spread-betting group IG Group Holdings (LSE: IGG).
Today’s results show that IG was already doing well before the referendum. Full-year trading revenue rose by 14% to £456.3m, while operating profits rose by 7.4% to £207.9m.
These numbers show how profitable IG’s business is, with an operating margin of 45%. Profits grew by less than trading revenue because IG has been investing in longer-term growth initiatives, such as a retail brokerage business. It hopes to be able to attract share-trading customers as well as spread-betters.
IG’s underlying earnings rose by 8.5% to 44.6p per share last year, putting the stock on a trailing P/E of 18. IG said this morning that it will increase the total dividend by 11.5% to 31.4p per share, giving a trailing yield of 3.7%.
I continue to rate IG as a buy.
Do housing nerves make this stock a bargain?
Shares in AIM-listed home improvement group Entu (UK) (LSE: ENTU) fell by 25% this morning after the group warned that full-year results will be below expectations.
The firm says that £3.5m of costs from the closure of its solar panel business will have to be carried in the current year. However, more worrying is that £2m of central overheads formerly charged to the solar business now have to be absorbed by continuing operations. This suggests to me that the solar business may have been more profitable than the rest of the group’s operations.
These extra costs may be offset in time by new business, but today’s report warns that even though order books are full, “new commercial business streams have been slower to come through”.
As a result, Entu’s operating profit fell from £4.2m to £1.1m last year, although sales rose from £45.8m to £51.2m. The interim dividend has been cut from 2.6p to 0.5p per share.
The outlook here will depend on whether Entu can maintain its order book at stable profit margins and continue to cut costs. Although the shares will continue to look cheap even when forecast earnings are cut, they may be cheap for a reason.
Don’t be fooled by this 30% surge
Shares in troubled Kurdistan oiler Gulf Keystone Petroleum (LSE: GKP) have surged 30% higher this morning to 7.3p. Investors may be hoping for a last minute reprieve in the form of a takeover bid, but I think this is unlikely.
Reports suggest that the cause of this sudden surge of buying is that a number of large brokers and spread-betting firms are forcing short-sellers to close their positions. That has created a technical surge of buying. But it doesn’t mean there’s any fresh demand for Gulf’s stock.
Nor does it mean that anything has changed regarding Gulf’s proposed refinancing plan. Bondholders will swap $500m of debt for new shares giving them an 85% stake in the firm. Existing shareholders will be able to maintain a 15% stake in the firm, if they participate in an open offer to raise $25m at 0.82p per share.
I expect today’s gains to reverse at some point in the next few days or weeks. The shares remain likely to fall to 1p eventually, in my opinion.