IG Group is well worth a punt

SIG; Theratase
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The Independent Online

David Beckham'a last-minute goal against Greece and England's 5-1 victory over Germany were among several disappointing sports results in the past six months ... for IG Index, the spread betting firm.

These, and a glut of goals in televised domestic football matches, took the shine off results yesterday from IG Group, the parent company. Sports betting profits were down 27 per cent in the six months to 30 November, with turnover up just 2 per cent, in part due to the cancellation of the Ryder Cup.

Financial betting, the bigger part of the business, is going great guns, though. Stuart Wheeler, the multi-millionaire founder of IG who hit the headlines last year with a record-breaking £5m donation to the Conservative Party, has an admirable grip on his company. He cautions against reading too much into short-term fluctuations. The rub of the green may go the punters' way for a while, but bookies win out in the end. Yesterday, he resisted suggestions IG should hedge more of its bets, arguing such insurance is not cost-effective.

The salient facts in the results were the 18 per cent rise in pre-tax profits to £8.4m, and the 81 per cent growth in sales of contracts for difference. Known as CFDs, these are regulated financial instruments, rather than bets, which allow clients to make money on movements in share prices. CFDs now account for 22 per cent of turnover, and IG's new stockbrokers' licence should enable it to keep attracting new non-betting clients.

The traditional stockbroker, with a less sophisticated mix of equity investment products, looks a pale rival for IG. The brokers who have reported in the last couple of months have, on average, shown turnover down by 6 per cent and profits off 45 per cent. IG's double-digit growth in the current depressed investment market should give confidence it can make big gains when trading picks up again. The number of IG clients has risen from about 6,000 a year ago to about 9,000, and Mr Wheeler reckons they will again deal more often.

Meanwhile IG is expanding cautiously abroad. A joint venture in Pakistan is now open and an Australian office will follow in the spring.

A hint of more disappointing trading over the – admittedly quiet – Christmas period sent IG shares down 15p to 477.5p. That puts the stock on 21 times forecast earnings, which is too cheap for the growth on offer.

SIG

SIG, the insulation specialist, has always been the ugly duckling among the UK's brood of quoted builders' merchants. Lacking the global scale of Wolseley or the geographic focus of Travis Perkins, it has traded at a discount to its rivals. That may be unfair, since the company has a dominant position in supplying insulation materials, particularly to the petro-chemical industries. But there was little in a trading update yesterday to trigger a re-rating of SIG shares.

The statement confirmed that sales for the year just ended have topped £1bn for the first time, an 11 per cent rise split about half and half between acquisitions and organic growth. David Williams, the new chief executive, said there was strong progress across the group's three divisions: roofing; commercial interiors; and insulation.

Some 60 per cent of turnover comes from the UK and Ireland, where where the construction industry continues to boom, but there was less good news overseas. Germany, mired in recession, and Poland, where subsidies are being pared back, were disappointing. At least there was confirmation that the German division is still in the black and SIG was talking up the defensive nature of the business. About 70 per cent of group turnover comes from essential maintenance or upgrades prompted by regulation on heating efficiency.

The company is reckoning on spending up to about £40m on acquisitions again this year, but is unlikely to be buying abroad. Mr Williams said he "would rather spend a pound than a euro, and rather spend a euro than a dollar".

Williams de Broe predicts earnings per share for 2001 of 29.7p, rising to 32.6p this year, but the main risk is that the UK economy decelerates more sharply than forecast. SIG shares, off a ha'penny at 276p, are good value, particularly since analysts reckon the downside risk is limited by the chance of a takeover bid. Hold.

Theratase

A biotech with profits, Theratase made £2.4m in the year to September, up 20 per cent. The group makes enzymes, biological molecules used in home diabetes tests, whose sales are rising at 10 per cent annually.

That business provides a solid base on which Theratase is trying to build racier growth. It is working on a novel treatment for sepsis. And Ista Pharmaceuticals is about to provide trial results on a treament for eye damage which uses a Theratase enzyme. Down 4p to 67p, the stock is a speculative buy.

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