Thanks @lowway. Very interested to hear your views, especially about who supplied your various materials, views on brands etc. Hard to beat real industry insider perspectives!

Happy to give a general overview @mikebrisy from my perspective on the industry, keeping in mind I got out almost 6 years ago. That said, some things have changed dramatically in the electrical and telecommunications industry in that time, but a lot remains as usual from a leading brands and quality perspective, particularly for the larger end of town firms and larger projects.

The major changes are the obvious ones; cloud computing, the evolution from the internet of things (IoT) to the latest “catch cry” AI and mostly the huge requirement for dedicated data centres to fulfil all of this additional comms and data compute power. Add to that the conversion of the current electricity network from a “dumb grid” to a “smart grid”, something that has been rapidly happening for the past 10-15 years (nothing moves rapidly when dealing with big, incumbent energy providers).

Looking specifically at IPD Group and their evolution over their modern history, a lot of their bread-and-butter products seem to be targeted towards the MV & HV type distribution projects and power generation using products from world class suppliers such as ABB (Asea Brown Boveri…….not Aussie Broadband!!), GE, Alstom, etc. I’m not sure if IPD have total exclusivity to these products as sort of alluded to on their website and marketing (e.g. I know ABB has its own large setup in Australia and sells directly to the bigger market players), but the need to continue to upgrade the grid for the “electrification of everything” as proposed by most renewable advocates (e.g. Saul Griffith’s project in north Wollongong) and indeed to upgrade purely for the rise in solar and even nuclear generation if it gets legs is an absolute. In other words, whichever way we head from a Government Policy perspective to de-carbonise our grid, it will entail large volumes of medium & high voltage distribution materials. The CMI component is obviously the cables, but additionally the sub-stations and switchyards will all need transformer and other switching equipment upgrades and large amounts of telecommunications, SCADA and other forms of secure smarts for real-time reactions to the marketplace requirements for 2-way energy flows.

Hartland cables is a subset of CMI and they have been a long-time well credentialled supplier of data cabling to the industry, so new data centres or comms required for the grid upgrades should be well within their sweet spot.

Whilst this all looks great for the IPD Group, it is not without solid competition of course, so it will come down to who can supply the best quality at the best price. Most Distribution Network Service Providers – DNSPs such as Ergon Energy and Energex in Qld have internal advocates for preferred equipment and ABB, GE, Alstom would certainly be in this mix along with other IPD competitors such as Wilson Transformers, etc. The CMI cable range (other than Hartland comms cables) seems more directed towards specialist mining scenarios than DNSPs with the incumbents for cable more likely to be Nexans (formerly Olex), Prysmian (formerly Pirelli), etc.  

So do I think they can gain more traction in the market and a bigger piece of the ever-increasing pie…. sure, but it depends. They currently seem to have a good quality board with some great background across the industry. I’m not au fait with their management & operational team and the lower levels of management and I doubt any of the higher-level team have skin in the game to any great extent, but that would be the same for any of their competitors.

They seem to have made a reasonable fist of the other acquisitions over their past 10 years with these mainly being services organisations (HV testing team from Zinfra, Addelec for Power Distribution Construction and EV Charging station installs, etc.), so I have no reason to doubt their ability to continue to perform up and to the right, just like their share price since 2022.

I’ll leave the financial analysis in your capable hands @mikebrisy, but hopefully this gives you and other SM members an idea of their current capabilities and stiff competitors. Probably IPD is in a bit too competitive space for my investing appetite, but that said, it is truly a huge growth area, so if they run a smart business, they can certainly grow exponentially with this marketplace. I’ll watch with great interest for now.

@lowway great stuff. Good to get some in depth inside background on the industry.

note: holder IRL

@lowway - great perspectives, thanks!

You raise an important point - one I hadn't fully considered. Many of the big buyers will have direct deals with the OEMs.

I was talking recently with someone in my local network who works as a supplier of precision instrumentation, with a distribution deal for a leading overseas OEM. On many business opportunities they go head-to-head with the the OEMs Australian sales teams. So, while on the one hand, the overseas OEM wants their local distributors to be successful, they also complete with them for business.

This will certainly be the case with the likes of ABB, GE, Alstom etc, and others you've listed. So, not only does $IPG have to compete with other distributors, including smaller category specialists, they'll also have to compete with the OEMs directly, and often won't even get a chance, because the customer procurement teams will systematically be looking to extract the margins captured by any middle men as they bypass them.

In conclusion, your perspective is right to throw some cold water on the "multi-decadal tailwind" - it is a competitive game, absolutely.

That said, I am very impressed by $IPG's progress to day - even looking through the inorganic element - which flatters the growth numbers. I'm happy to be driven by the numbers, however, evidence that they can't meet or beat "system growth" in their sector, with good margins, would be a flag to sell.

I also agree with your point about over-egging the "exclusive distributorships". It is a general thing management often do - take an area of capability ot advantage, and imply that's its a bigger piece of the action than it really is. Something to keep an eye on.

@mikebrisy If they lose to the overseas distributor with respect to the sale, would the Australian distributor still not get the installation, servicing and maintenance contract? From what it seems this will form a significant part of their ongoing revenue. So it’s in effect still a bit of a win-win situation for IPG.

@NewbieHK - yes, that's true. And, as $IPG have pointed out in some of their presentations, the maintenance, spares, and servicing contracts tend to be high margin and long duration. Good point.

@mikebrisy @NewbieHK all good valid points. There is always higher margins in the service component of all elec & comms projects, particularly for specialist trades and test engineers that make up the core offerings for $IPG services.

From a Data Centre construction perspective, I have a softer spot for $SXE, but I'm yet to undertake a full review and simply making this comment based on anecdottal evidence and discussions with former comms colleagues. Hopefully by the time I dig into $SXE further (won't be for a few weeks), their share price that is currently on a big upwards trajectory wont be out of reach for the valuation. Fingers crossed.

@lowway totally agree with you about $SXE, I wish I'd been paying more attention to some of the most illustrious StrawPeople who covered it before it took off! That's what you get for not paying attention.

With a forward P/E of 20x (***) its getting up there for an engineering and construction firm. But what scares me off more is that a lot of the "talking heads" are going on about it. So it risks becoming a crowded trade, or at least that's what the contrarian in me is saying.

(*** - maybe, maybe not. $WOR is on 24x!! And I know which I'd prefer any day)

So, I am looking forward to your work on this one. My dance card is full for the foreseeable future. (I'm deep in the bowels of reading the science of $BIO, which I'l' need to juggle with reporting season as well as a bit of work on my side hustle.)