Automation and electrical distributor $IPG announced their FY24 guidance, following 10 months' results.
The guidance for EBITDA ($39.0-$39.5m) and EBIT ($33.5-$34.0m) is bang on consensus - give or take - and in line with my model.
At midpoint, EBITDA growth is 42% and EBIT growth is 44% to pcp ... albeit with a significant inorganic element, which I'll discuss below.
From the Release
Michael Sainsbury, IPD Group Limited CEO, said: “It has been a transformative year for IPD with the completion of two strategic acquisitions, EX Engineering and CMI Operations. Merging our Addelec and Gemtek businesses has significantly enhanced our EV infrastructure team and we are capitalising on the growth in the market by securing a number of major projects during the year, including the electrification of Australia’s largest bus depot. We are excited by IPD’s evolution, with our extended product and service offering strengthening our overall value proposition to our existing customers and broadening our customer reach.”
My Analysis
With the SP at a 29% discount to consensus, having been on a slide since shortly after HY results for no apparent reason, we might start to see the result close the gap.
FY24 will include only 5 months contribution of the material acquisition of CMI Operations, so the deal bakes in a favourable comparison for FY25. Now, while the market should discount that, it is worth remembering that $IPG picked up CMI Operations for a very good price. The $101m price tag (including a maximum $8.9m contingent payment) represented around a p/e of 10 and an EV/EBITDA of about 6. With good category synergies, and some valuable distributorship arrangements, the CMI Operations deal was a smart acquisition. That's before we even consider cost synergies.
A new holder of $IPG, I probably initiated my position prematurely, given the chart trend (always easy to say in hindsight, but I knew I was buying against the short term technicals), but today's result gives further confidence that the business is on track. We probably will have to wait until the FY25 result to see the value of the CMI Operations playing through - at this stage the metrics will just show 1+1=2.
$IPG is my way of playing the themes of 1) electrification of the economy and 2) investment in power infrastructure for datacentres.
This appears to be a well-run business, with smart acquisitions building out the product offering, bring leading brands under their umbrella, focusing on developing key capabilities (e.g. hazardous area equipment and related services), as well as continuing to build out the geographic footprint.
At a superficial glance, it looks expensive for a distributor at a p/e of 24 (FY24), however, when you dig deeper there is a lot to like about this distributor and the industries it supplies.
Disc: Held in RL and SM
