The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
Not saying you close the business down! If they did a really massive buy back they would use up cash valued by the market at 28p in the pound approx to buy shares on a pe of 7. They are doing this steadily but imagine if they did this in a big way what a massive impact on earnings that would be.
Bearing in mind income from customer trading performance dropped from a wholly exceptional 50million down to 30, the underlying growth was excellent and volatility is picking up and estimates have to go up, leaving a consensus pe of around 7, I suspect. If you look at the business separately from the cash the pe is way lower.
What I would focus on is simply
The ex div price is about 17.20
Eps consensus, probably fair, is around 240p.
Pe close to 7.
If you only use 7 times on interest earnings that values the cash pile at about a 70 per cent discount! To illustrate for every 100 pounds you earn on cash at about 4 per cent net of tax you multiply by the group pe of 7 to give you a valuation of 28 for every 100.
Difficult to isolate the massive human tragedy, but the major trends Plus share price typically does well out, given a lot of dollar earnings and a big dollar balance sheet, are volatility and dollar strength.
But profits from customers losing money were wholly exceptional in h1 2022 at about 172 million dollars! They dropped to a more normal but still high 42 million dollars roughly. In q2 profits held up even with customers making about 8 million dollars. Market conditions have been much more quiet this year so look at cmc for example by comparison.
Liquidnet was clearly a very badly timed deal but I still cannot see this share being worth under 200. So much more value enhancing to buy your own shares on a pe of under 7 rather than paying a much higher pe for an acquisition. The lesson must surely have been learned. In looking at the shares one could miss a big opportunity by just focusing on the one big mistake. The overall valuation and prospects is what counts.
Looks like an annualised per of under 6 even after a big rise to 168. Surely the shares should be much higher. Uncertainty and volatility great news for this company. Maybe they could hit 30p of earnings this year or close.
Using last year’s tax rate of 22 per cent looks like 147 cents approximately. Full year consensus is 243 cents. Using that rather low looking figure the pe is below 8. If the cash only earns 4 per cent net of tax a pe of 8 values the cash at 32 per cent of its actual value!
Buy backs should go back to 30k approx a day I agree. However, the main point is that these q2 figures are really reassuring. They have been achieved notwithstanding slight losses on customer trading whereas q1 figures were heavily dependent upon customer trading. It does look as if an eps for the year of around 190p can be achieved, in line with consensus, and crucially without much customer trading profit. With the big amount of cash and big long term opportunities that makes the pe look awfully low.
Surprised no comment as yet on this as eps key to the valuation. The number of shares has dropped by 8 per cent so ex the interest cost on 101 million pounds eps has indefinitely been enhanced 8 per cent. The interest cost of 101 million pounds is probably close to 2 per cent of consensus pre tax
profits. Hence an uplift in eps of about 6 per cent.
I am not sure we have seen the end of this debate and the company could be asked to clarify. IG has only marginally more active clients than plus and fully 4 billion pounds of client deposits. Our comparable figure is surely 2.2 billion dollars not some fraction of that. Some of this 4 billion is held directly with IG on its balance sheet but a lot with third parties. However, IG makes it crystal clear in its interims that it can still take quite a benefit from the latter. Indeed on USA such balances it takes the full benefit. If interest rates do average 5 in the USA this year then the uplift on own account plus client on balance sheet balances is around 3 per cent of 1.15 billion but in fact the latter figure probably will be higher. Then of course there is the impact of huge client balances not on balance sheet.
Average deposit per active customer is 8,000 and with 280,000 active customers that squares with 2.2 billion. Agree that note 7 tells a different story but one should probably use gross amounts. In any case the numbers on interest are going to be very big. Perhaps should clarify with the company.
I do not think cfd brokers give any interest to clients! On the own account cash that the market effectively gave no credit for there as there was no return virtually there is now a big return that goes into earnings. Cmc has until recent drops been valued on a pe well above plus and so was looking vulnerable. There have not really been downgraded eps for ig just a pe drop.
Does no one have a comment on yesterday’s posts? It seems like we could have a sustainable up shift in pre tax of over 100 million dollars due to higher interest rates. Maybe even 100 million post tax. What pe is that earnings stream worth? Even at 10 it is maybe 1 billion dollars?!
First line of the last prelim statement. Customer deposits reached 2.3 billion dollars. It seems cfd brokers give nothing in deposits so if interest rates go up about 4 per cent it is massive.