IG Group is a safe bet against falling markets

The explosion in spread betting has seen the value of the largest player in the sector, IG Group, triple since it came back to the market in May 2005 after a period in private equity hands.

In the 33 years since it began trading, IG has become a leading innovator in spread betting and now only generates about 5 per cent of revenue from sports gambling. IG’s main business is financial spreads – allowing punters to place bets on a wide variety of financial instruments including equities, indices, commodities and foreign exchange.

Yesterday’s full year results were impressive, although in line with market forecasts, with pre-tax profit up 34.8 per cent to £68.9m on a 36 per cent jump in revenues to £122m. The results were accompanied by a bullish report on the start of the current year and a surprise dividend increase in the dividend pay out ratio.

Over the last four years the company has embarked on an ambitious expansion plan across Europe and the Far East. So far, it looks to have been well timed as investors in both regions have increasingly taken to alternative methods of playing the markets and sports gambling.

Investing in the business has had a slightly negative impact on margins but the benefits should not take too long to push through to the bottom line.

The company is taking on approximately 1,000 new customers per month; a 25 per cent increase on the same period last year even. About 10 per cent of new accounts are coming from outside the core UK and Australian markets. IG Group also offers investors a good hedge against falling markets – when markets tumble, volatility increases and volume rises, IG Group should make more money regardless of where the markets themselves go.

Its shares are not exactly being given away – according to Citigroup, the stock is trading on 18.5 times forecast 2008 full year earnings. But top quality doesn’t come cheap, and given its track record, strong, sustainable growth and defensive qualities, IG Group should remain firmly on the buy list.

Tags: IG Group, igindex, spread betting

This entry was posted on Tuesday, July 24th, 2007 at 2:44 am and is filed under Financial Updates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.