Investment Column: Rising revenues and healthy yield make IG a good bet in tough times

Cluff Gold; St Ives

Our view: Buy

Share price: 474p (+40.2p)

The last time we looked at IG, it had just announced management changes and the closure of its sports-betting arm. The latter heralded greater focus on the spread betting firm's core financial business, which we liked. But we decided against buying, as we wanted further proof of the promise of growth held out by IG's activities in overseas markets.

Much has changed in the intervening period. For one thing, the economic outlook has turned darker, making IG's chunky prospective dividend yield of 5 per cent (and higher on some estimates) look that much more attractive. The income, and the quality of the UK business, suddenly appears more valuable in light of the weaker trends in the global economy.

But that isn't all. The company's trading update for the six months to the end of November, published yesterday, showed that IG had "continued to experience high levels of client activity during the second quarter of its financial year", an encouraging disclosure after the strong first quarter. The update did not offer much detail – a more comprehensive statement is due next month – but it did show off some positive numbers.

IG said it expects revenues for the period to be in excess of £193m, against £156.7m in the same period last year. Costs, meanwhile, were in line what management had pencilled in. Put another way, this ship remains on an even keel, even as the markets grow ever more turbulent. But, then again, this shouldn't be surprising; volatility often drives volumes and activity, which is positive for firms such as IG.

The combination of the factors mentioned above – rising revenues in uncertain times, a quality franchise and a healthy dividend yield at a time when earnings across all manner of sectors are in question – make IG look like a good bet. At around 12 times forward earnings for next year, falling to under 11 times for the year after, IG is not expensive either.

Cluff Gold

Our view: Buy

Share price: 77.75p (+1.5p)

In the first set of results since 71-year-old gold veteran Algy Cluff finally relinquished the chief executive's jerkin, Cluff Gold reported it was making good progress yesterday.

The company said it was on track to produce 70,000 ounces this year, as rising production from its Kalsaka mine in Burkina Faso helped it to book strong third-quarter earnings before interest, tax, depreciation and amortisation for $22m (£14m), well ahead of the figure in the second quarter.

Kalsaka delivered robust quarterly production of 23,611 ounces, up 61 per cent on the second quarter.

Although Mr Cluff, who first went to Africa as a young Guards officer, has stepped down as chief executive, he remains at the company as non-executive chairman. No doubt his vast experience will come to bear on the running of the operation, but the replacement chief executive, Peter Spivey, will be steering the ship.

Mr Spivey joined Cluff in January 2010 and was appointed to the board six months later. An experienced mine developer and operator with nearly 30 years under his belt, he was previously chief operating officer of Mineral Deposits Limited, where he was responsible for developing the Sabodala Gold Mine and Grade Cote Mineral sands projects in Senegal.

Cluff, then, looks to be in good shape and capable hands. Although gold is down from its September peak it is still just over a quarter higher than it was a year ago and, with safe havens likely to be in increasing demand in the coming months, is tipped to rise further during that period. This, combined with Cluff's strong cash balance – of $25.6m on September 30 – makes the group a solid proposition.

St Ives

Our view: Buy

Share price: 88p (+0.13p)

Yesterday's update from St Ives, the print and marketing services group, was reassuring. Sales in the 13 weeks to the end of October were up 10 per cent on the year before. The performance was driven by the marketing arm, while sales across the company's print business were in line with last year.

The latter division is the more problematic one, given the tough trading conditions. Indeed, the fact that St Ives has managed to maintain sales is commendable. It has also moved to streamline its activities, revealing yesterday that it had proposed the closure of its Westerham and Blackburn manufacturing sites, which print company reports and inserts for CDs and DVDs.

On the upside, the book printing sub division continues to do well. And as mentioned above, the marketing arm is going strong, driven by a combination of organic and acquisitive growth. The action to trim the printing arm makes this a more attractive proposition, as it reduces the risk attached to the business. In fact, it is enough to make us abandon our hold stance.

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