There are a few reasons why online trading provider and FTSE 250 member IG Group (LSE: IGG) continues to be the biggest holding in my ISA portfolio.
As well as boasting fat margins and high returns on capital, the company is a great source of income. A likely 43.2p per share return for the financial year just gone gives a yield of 5.5%. That’s highly attractive at a time when many listed firms are withdrawing their cash payouts to investors.
The biggest reason, however, is the company’s capacity to thrive in good times and bad. I’d say we’ve experienced both lately. Let’s take a closer look at today’s (brief) update from the company.
FTSE 250 star
This morning, IG stated that net trading revenue in Q4 is now expected to come in around £259m. This represents a huge increase on the £117.9m achieved over the same period in 2019. Taking the other three quarters into account, a full-year figure of around £649m is now predicted, comparing favourably to last year’s £476.9m.
So, why are the shares trading flat today? Well, it could simply be that a lot of this good news was already priced in. After all, a surge in client activity during a tumultuous few months in the markets is exactly what you’d hope for.
The question, therefore, is not whether IG has been performing well but whether it will continue doing so. On this front, I remain positive.
Although there can be no guarantees when it comes to investing, the likelihood that markets will remain volatile, particularly when the recession begins to bite, is surely high. IG’s share price won’t be immune to this, but it’s unlikely to suffer as much as most. It should also recover strongly.
With the possibility of a special dividend also on the horizon, I’m in no hurry to sell this FTSE 250 star.
Another holding I’m unlikely to jettison soon is critical power control component manufacturer XP Power (LSE: XPP). Like IG, it also reported some excellent numbers to the market this morning.
Boosted by the fact that all of its facilities are now up and running, orders over April and May came in at £55m — 84% higher compared to the previous year.
Unsurprisingly, the mid-cap has seen “exceptional levels of demand” from Healthcare customers. XP’s components feature in a large number of medical devices used to tackle Covid-19. Strong demand has been seen from customers in the Semiconductor Equipment Manufacturing sector.
All told, £128m of orders have been received in 2020 so far — up 52%. Revenue is currently at £86.3m — a rise of 7% from this point in 2019.
Another positive in today’s update was the reduction in net debt. This reduced from £45.3m at the end of March to £38m two months later. What’s more, management expects debt to continue falling over the rest of the year.
It wasn’t all completely bullish. While a healthy order book should settle investors’ nerves, the FTSE 250 constituent did say that economic uncertainty would “continue to provide a wide range of potential outcomes for 2020.” It also expected demand from Healthcare customers to normalise.
Notwithstanding this, I think this quality company remains an excellent long-term hold. A valuation of 25 times forecast earnings isn’t cheap, but this falls to 21 times next year, based on analyst projections.