IFG shares plunge as legal cost row scuppers dividend

By Geoff Percival

Shares in Irish-founded financial services group IFG plunged by as much as 10% on the back of it forecasting legacy legal costs — connected with an investment sold to clients — could stretch to around £20m (€23m), scuppering chances of a final dividend being paid to investors for 2017.

The company also said it is considering selling its Saunderson House financial advisory division, which could result in the rest of the business being subsumed by its specialist pensions subsidiary James Hay.

In a trading update, IFG —which is now entirely focused on the UK market — said James Hay boosted its customer numbers by 30% —or 6,000 — last year, with Saunderson House adding 247 clients.

However, IFG’s shares plunged on fears it may have to pay out around £20m to cover tax payments connected with a Channel Islands-based biofuels fund in which a number of James Hay customers invested earlier this decade.

IFG has already appealed £1.8m worth of payment rulings by the UK revenue service, which is concerned over the level of tax relief claimed by the scheme’s investors.

The company said it remains “confident” that any tax settlement would be for a sum “substantially lower” than the maximum £20m amount and any payment could be funded from existing cash resources.

Last August, IFG — which has been blighted by restructuring and legal costs of late — reported an operating loss of £100,000 for the first half of 2017.

It yesterday said it was making “good progress” on the trading front. Before Christmas, IFG said the Bank of England’s recent interest rate rise will boost its revenues and operating margins, but not until this year.

“Strong fundamentals, good growth and improving underlying financial performance, in both our businesses, has been overshadowed by a number of legacy issues. Our desire is to bring closure to these issues as soon as possible,” said CEO John Cotter.

Regarding Saunderson House, IFG said greater shareholder value may be created via a sale and that a number of approaches have been received. That news was greeted favourably by analysts.

“A sale would be transformative on two counts. It would generate significant cashflow for IFG, which we assume would be returned to shareholders, and it may also result in efficiencies from a more streamlined business as the plc could then be absorbed into James Hay, removing some of the current costs,” said Davy analysts Diarmaid Sheridan and Stephen Lyons in a research note.