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Mixed messages me thinks on IG Group (IGG, 183p)

January 20th 2009 saw a presentation and announcement by IG Group for the six month period to end November 2008  (can be found on company website), from which I have copied the following phrase:

‘trading since the period end has continued to be strong’

This was supported by presentations and discussions with investors and brokers, in the vein that activity continued to be strong due to the high level of volatility in the market.

March 10th 2009, in an ‘Interim management statement’ , IG Group said that

‘growth against very strong comparatives, is challenging (in UK and Australia)’

‘overall growth of the Group is impacted by a very strong comparative period’

‘UK has been affected by the implementation of more stringent risk controls in October’

‘The uplift of revenue that the group typically experiences on a higher volatility day is becoming progressively less marked’

The FT commented : ‘IG yesterday said revenue in both the UK and Australia – its two biggest markets – had fallen by 7 per cent to £31.5m and £6.4m respectively during its third financial quarter’.

FT article.

Times article.

And not surpisingly, the share price falls by more than a third, from 260p to 180p.

So what happened? January 20th was already 51 days into the quarter.

Either trading collapsed since January 20th, or the company hadn’t detected a deterioration in trading when they announced Interim results on January 20th.

But wait! Somebody must have had an inkling of the risks inherent in the shares. Maybe the COO, Peter Hetherington believed the shares to fully reflect the positive news, with risk on the downside. He sold on January 28th and 29th 700,000 shares, reducing his position in the group by almost 40%.

We commented on Hetheringtons sale on February 2nd, when the share price was 280p.

View on IG Group – close negative view with 34% absolute and 32% relative (to FTSE 250) return.

jonathan-davieI’m sure Jonathan Davie wouldn’t appreciate the term ‘veteran’, but having entered the world of stock-jobbing with the firm of George Hill on the Stock Exchange floor in 1969, I’m happy to classify him as one of the more experienced men working today, with three, now four, bear markets under his belt.

I’ve worked with Davie, the Non Executive Chairman at IG Group (IGG, 211p) before. Apart from being a charming gentleman, he knows the markets well, and has unbridled passion for them too.

So his purchase of 90,000 shares in IG Group at 183p last week, post the pre close update, results in IG going on my watchlist. Davie now owns 1m shares in IG, so on a relative basis this is just a toe in the water for him.

Davie sold 880,000 shares when the going was good, between October 2006 and March this year, at an average price of 311p. He was bettered in his sales only by his Chief Operating Officer Peter Hetherington, who sold almost 40% of his holding, or 1m shares, at 400p in October 2007, within 7% of the all time high achieved the same month.

The press and the market were pretty critical of IG’s pre close statement last week, with the shares falling by almost a quarter. Of particular concern was the leap in bad debts, which IG said “relate to a small proportion of the client base”, and 80% of them were said to occur in the October mayhem (Telegraph Questor November 20th). Could this repeat itself? Sure, why not. But I’m sure IG have learnt from this. 

What would I like to see to become more positive?

1. Davie buying more shares. He realised GBP 2m through his sales, and has reinvested less than 7% of that.

2. COO Peter Hetherington buying shares. He gets full marks for selling at the top. I’m happy to wait for his buy signal too.

View on IG Group- Positive, director buying shares

Strength of signal- Weak, only one director buying, and in relatively minimal size.

IG Group go on the watchlist.

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