Banco Santander SA, IG Group Holdings plc & Hiscox Ltd: Buy, Sell Or Hold?

What is the long term outlook for these 3 financial companies? Banco Santander SA (LON: BNC), IG Group Holdings plc (LON: IGG) and Hiscox Ltd (LON: HSX)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The financial services industry is a rather mixed bag. On the one hand there are a relatively large number of high quality companies with bright futures trading at very appealing prices. Investing in such stocks could equate to excellent long term gains. However, there are other companies which offer volatile, disappointing forecasts and yet demand a premium over a number of their peers. The difficulty, of course, is deciding into which camp a particular company falls into.

In the case of Santander (LSE: BNC), it appears to be worth buying at the present time. This, however, does not mean that it is a low-risk buy, since it faces a major challenge in Brazil which, until recently, was its dominant market. Of course, the problems Santander is experiencing in Brazil are mostly external, with the Brazilian economy enduring a very difficult period and this has caused Santander’s earnings forecasts to be downgraded significantly in recent months.

While double-digit growth was predicted for the current year and for next year, Santander is now forecast to grow its earnings by just 3% and 5% respectively. That’s below the wider market’s growth rate and is a key reason why the bank trades on a price to earnings (P/E) ratio of just 10.5. However, with other markets (notably the UK) performing well at the present time and Brazil likely to mount a comeback over the medium to long term, Santander appears to be a sound bank with a bright future, trading at a distressed price.

Meanwhile, spread betting company IG (LSE: IGG) also seems to be worth buying. It benefits from increased market volatility, so the August correction and subsequent yo-yoing of the UK index has been positive news and is likely to contribute to growth in the company’s bottom line of 2% in the current year, and a further 10% next year. This puts IG on a price to earnings growth (PEG) ratio of 1.7 which, while hardly dirt cheap, indicates that capital growth potential is on offer.

IG also has considerable income appeal. It currently yields 3.9% from a dividend which represents a rather lowly 70% of earnings. For a company with rather modest capital expenditure requirements, a higher payout ratio could lie ahead which, alongside the aforementioned earnings growth prospects, could equate to a very positive income return for the company’s shareholders.

Not all financial services companies offer such good value, though. Insurance business Hiscox (LSE: HSX), for example, trades on a P/E ratio of 15.5 and yet is expected to post a fall in its bottom line of 5% this year and a further decline of 9% next year. Certainly, the insurance industry is relatively volatile and Hiscox is a financially sound company with a strong reputation, but such a valuation indicates that capital growth may be lacking over the medium term.

Furthermore, Hiscox also yields just 2.4%, which is less than half the yield on offer at a number of its insurance rivals. Of course, a key reason for this is the 21% gains made year-to-date in the company’s share price, which have suppressed Hiscox’s yield and bloated its valuation. As such, now could be a prudent time to switch Hiscox for another insurer or financial services company on valuation grounds.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

How I’m aiming to become a Stocks and Shares ISA millionaire!

The Stocks and Shares ISA is an excellent vehicle for investments. In fact, many investors have become ISA millionaires. Here's…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

The Scottish Mortgage share price is on the up! Here’s why I’d buy

After a poor first half of the year, the Scottish Mortgage share price is beginning to rise. Here, this Fool…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Should I be grabbing cheap Lloyds shares?

Lloyds shares have underperformed in recent years. Here, this Fool explains why he's still considering the stock for his portfolio.

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

How I’m using UK dividend shares to try and turn £20,000 into £100,000

Our writer has ambitious investment goals -- and patience. Here he explains how he's buying UK dividend shares to try…

Read more »

Middle-aged lady in wheelchair writing on whiteboard
Investing Articles

I’m taking a defensive stance by investing in the FTSE ahead of the recession

The FTSE has outperformed several indices in 2022, including the S&P 500. Jacob Ambrose Willson believes it can be used…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Should I buy BP shares today?

BP is generating huge profits right now. Here, Edward Sheldon looks at whether he should buy shares in the oil…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Should I buy Rolls-Royce shares after the latest results?

Jon Smith runs over the key points from half-year results for Rolls-Royce shares to see if any green shoots are…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

A FTSE 100 stock that I never intend to sell

Hunting for undervalued stocks, Andrew Mackie explains why he recently bought more of this FTSE 100 powerhouse.

Read more »