The Financial Grimes: Well placed to start new upgrade cycle

This top City analyst reviews the financial sector stocks making headlines today.

Jeremy Grime spent 15 years as a financial sector analyst, working at Altium Capital, RBC Capital Markets, Panmure Gordon and most recently as Director of Research at finnCap. Jeremy is also a qualified accountant.

Jeremy’s blog is written with more experienced investors in mind. However, we have included a brief glossary at the bottom of the page to help those less familiar with some of the language used. For more on key financial metrics and valuation ratios click here.

News

Last night the Federation of swiss watchmakers announced June exports down 10.7%. Checking in more detail it seems that Watches of Switzerland (LSE:WOSG) will be OK as UK was up more than 12%. The damage was done by Hong Kong which was down more than 23% – blamed on "recent events". I find myself which other luxury brands from the UK have significant Hong Kong exports. Grateful for suggestions.

IG Group – FY Results

Share Price 580p

Mkt Cap £2.14 billion

Conflict Disclosure: I Hold

IG Group (LSE:IGG) is a spreadbetting platform.

• Results The financial summary is quite a way down after the operating and strategic summary which is never a good look.  Trading revenue down 16% to £477 million and costs down 2% to £284 million, Operating profit down 31% to £192.9 million and EPS down 30% to 43.1p. Dividend maintained at 43.2p. Outlook expects revenue growth in current year but in H2 as the effects of ESMA only came into effect in Q1 19.

• Numbers At the strategy update, the company said it expected 3-5% core market revenue growth and £160 million from other significant opportunities by FY 22, which is £60 million in 2019. Adding these numbers to the £477 million delivered gives £620 million revenue for 2022, a 30% uplift. Forecasts for 2021 are for £540 million revenue which looks conservative.

• Valuation 2020 PER is 14.2 and yield 5.7%

• Conclusion With 66% of revenues from professional clients, this stock looks well placed to start a new upgrade cycle. The shares are up 17% since the announcement of the new strategy on 22 May, so until the next upgrade may tread water.

Integrafin – Q3 Update

Share Price 383p

Mkt Cap £1.27 billion

Conflict Disclosure: No holding

IntegraFin (LSE:IHP) supplies a "wrap" platform called Transact to financial advisers and their clients

• Update Net inflows were 2.3% in the quarter to June bringing AUM to £36.4 billion, an increase of 5.6% over the quarter. The statement also comments that costs are modestly below initial expectations.

• Estimates Forecasts for the year to December 2019 look for 8% revenue growth and 15% PBT growth. An annualized growth rate of AUM and the comment on costs suggest we are in upgrade territory.

• Valuation PER 33.9X and yield 1.9%

• Conclusion The high valuation may be anticipating upgrades. Perhaps this high quality situation has a valuation which is two years forward looking. Long-term holders can be happy with that.

Paragon Bank  – Trading Update

Share Price 445p

Mkt Cap £1.16 billion

Conflict Disclosure: No Holding

• Update New business flows are stable with a modest rise in the Buy to Let pipeline. New lending of £1.9 billion is reported to be strong. NIM is improving above the 2.24% reported in H1. And the 2.19% in 2018.

• Estimates The exceptional gain on the sale of a legacy portfolio will reduce profits by £2 million in 2019 and £6 million in 2020. The company expectations are unchanged

• Valuation PER 8.9X and yield 4.7%. Price/Book 1.1X and ROE 11.9%

• Conclusion Shares are very cheap, but it is hard to see significant growth in Buy to Let and with rates looking like they are going down rather than up, it will be hard to grow significantly.  Too early to get excited yet.

For information about Jeremy's 'deep dive' company analysis, you can email him at jeremy@charltonillingworth.co.uk

Jeremy Grime is an independent equity markets analyst and freelance contributor, not a direct employee of interactive investor.