Electrical products distributor and service provider $IPG announced their 1H results last week.

ASX Announcement

The company which was listed in late-2021 has seen its SP on a tear, heading into the results up 5x since listing. (Max kudos to the early StrawPeople who got onboard!)

$IPG has been on my watch list for 6-9 months, and I took a starting position in it on the pullback following results, which saw SP fall from a peak of $5.43 to close on Friday at $4.75, a handy correction of 14%.

I'll write next week in further detail as to why I am investing in $IPG, and will here just discuss the results. For those wanting more detail, there are broker reports by Bell Potter (TP $5.95) and Taylor Collison (TP $5.00 - free on the ASX broker report service.)

Now, as a word of caution on analyst views, my understanding is that Bell Potter was the lead Manager and Underwriter of the November capital raising. Their very high TP should be considered in that context.

Their 1H FY24 Highlights

• Record half-year revenues and earnings at the top end of the guidance range
• Revenue of $120.7 million representing 8.8% growth on pcp
• EBIT of $14.0 million representing 21.7% growth on pcp
• NPAT of $9.8 million representing 22.5% growth on pcp
• Fully franked interim dividend of 4.6 cents per share declared
• Strong balance sheet, with $142.7 million of net assets at period-end (net debt of $23.7 million as at 31 January 2024)
• Successful completion of the acquisition of EX Engineering Pty Ltd (“EX Engineering”)
• Announced acquisition of 100% of CMI Operations Limited (“CMI Operations”), a leading distributor of electrical cables and manufacturer & distributor of plug brands in Australia, from ASX-listed Excelsior Capital Limited (ASX:ECL)
• Raised $65.0 million of new equity capital in December 2023
• Post financial year-end: Entered into new $40 million debt facility to partially fund acquisition of CMI Operations and Completed acquisition of CMI Operations on 31 January 2024 

My Analysis

I was unable to attend the call and haven't looked at the transcript. So my analysis is a simple desktop exercise.

Expectations for $IPG were high. SP has been on a tear.

The 1H FY24 doesn't include the material CMI acquisition, although the EPS is lowered temporarily because the new shares were issued in late December, but the deal only closed in early 2H24. I'll pick through this in my preliminary valuation, which I'll post next week.

The table above shows why the market has reacted negatively and also why I think the results are not that bad.

Revenue growth at 8.8% is a softer result, compared to the trajectory over recent years (pre- and Post IPO). I think it is this softer result that perhaps triggered the SP correction. In the lead-up to results, the SP had run up hard, close to a stretching consensus, driven by Bell Potter's bullish view. However, despite low revenue growth (and short term revenue growth is not central to my investment thesis!), as we progress down the P&L, the results look pretty healthy.

%Gross Margin is a healthy 40%, up 2.4% from pcp.

EBITDA Margin is 13.7%, up 1.6%, drive by falling freight and distribution costs. (The marginal %EBITDA is actually 33% on a PCP comparison, which is not to be anchored on because the freight and distribution cost improvements cannot be sustained. I should also do the marginal analysis on the prior period.)

EBIT Margin was 12.0% up from 10.6%, and NPAT Margin was 7.9% up from 7.2%,

Note: My analysis is on the Statutory numbers and differs from the table above. I'm not prepared to consider the Underlying because M&A is an ongoing part of the business model, and core to my thesis, so I will not correct for the costs that arise from it.

These are pretty healthy numbers.

If we ignore the CMI acquisition, and assuming 2H and 1H are similar (there appears to be a slight historical weighting to 2H), then that would put $IPG on a annualised NPAT of $19,09. Backing out the new shares (because the result is not affected by the CMI acquistion), then by my calculation that puts $IPG on a p/e of 21.5 at its Friday close of $4.75.

This is a high p/e for a distributor. However, when I set out my investment thesis I explain why I am happy with this entry point.

I've had a quick look at cashflows, which were underwhelming, however movements in payables, receivables and inventories needs a deeper dive to make sense of it all, and therefore I am assuming the financials are a better guide. Cashflow and debt are not a concern based on a longer term historical view, so I'll leave this for another day.

My Key Takeways

In summary, there is no escaping that organic revenue growth was soft in the half, however the business was able to achieve good margin expansion, achieving what are pretty decent metrics for a 91% distributor / 9% services business.

Drivers of margin expansion have been moving more of the support activities of the individual businesses onto a share service model, consolidating their regional distribution networks, and favourable distribution costs in the PCP comparison.

From my selfish perspective, the down-trend in SP might continue for a while (gotta love technical traders), as I would like to increase my position here recognising I have paid more than I wanted to get started. More on that next week when I set out my investment thesis and valuation.

Disc: Held in RL and SM

IPD released its results yesterday. It’s steady as she goes with a combination of organic and inorganic growth. They continue to mention demand is strong and are well stocked to meet this demand.

Once some of the synergies are extracted from the recent acquisitions it will be interesting to see the types of margins that can be attained.

Note the price has run up in recent weeks so a pull back on earnings was expected. It’s now back in my 2024 trading range of 4.50-5.00 and FY NPAT is tracking around my midpoint target of ~20m.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02777053-2A1507314

Bell Potter report downloaded from Factiva. Price target 5.75

Screen capture of one page

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Full text from behind the paywall of the Weekend Australian.

Interesting article that highlights the valuation gap of the CMI sale vs the book value of CMI from Excelsior but not getting any answers why this has happened.

Excelsior’s valuation perplexity - 16dec23

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IPD Group retail component completes slightly oversubscribed

Although 66% took up the rights, the ones who participated top-up facility had to get their application scaled back

The Retail Entitlement Offer closed at 5:00pm (Sydney time) on Thursday, 14 December 2023 and raised approximately $7.7 million at an issue price of $3.93 per New Share (“Offer Price”). Together with the Placement and Institutional Entitlement Offer (“Equity Raising”), to total an amount raised under the Equity Raising as approximately $65 million.

Funds raised under the Equity Raising will assist with the funding of IPD’s acquisition of CMI Operations Pty Ltd (“CMI”) from ASX listed Excelsior Capital Limited (ASX:ECL) (the “Acquisition”), which will further enhance IPD’s position as a leading distributor to the Australian electrical market.

The Company received valid applications under the Retail Entitlement Offer of approximately $5.1 million, representing a take up rate of approximately 66%. Eligible retail shareholders were also offered the opportunity to apply for additional New Shares in excess of their entitlement, up to a maximum amount of 100% of their entitlement, at the Offer Price (”Top Up Facility”). When combined with the Top Up Facility, valid applications from eligible retail shareholders were approximately $8.1 million, representing an overall take up rate of approximately 105%. Applications under the Top-up Facility have been scaled back accordingly

I didn't take the top-up facility as IPD Group is already a top holding and don't want to go too overboard.

Should be interesting day tomorrow when the new shares start trading this Friday 22 Dec

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07-Dec-2023: IPD-Group-Initiating-Coverage-TC-Research.pdf

Tuesday Trades at $4.47 will this price give way to the Offer Price of $3.93 (price normally will fall to the Offer price)

IPD GROUP LTD (ASX:IPG) - Ann: Retail Entitlement Offer opens and Retail Offer Booklet, page-1 - HotCopper | ASX Share Prices, Stock Market & Share Trading Forum

All New Shares offered under the Equity Raising will be issued at a price of $3.93 (“Offer Price”)

IPD GROUP LTD (ASX:IPG) - Ann: Completion of Placement and Institutional Entitlement Offer, page-1 - HotCopper | ASX Share Prices, Stock Market & Share Trading Forum

A decent rally today closed at $4.77 up 13.57%

IPG way above the Cap raising of $3.93 ( 1 for 13.65 shares held )

Return (inc div)   1yr: 55.96%   3yr: N/A   5yr: N/A

Further info from agm and new acxq -

The new acq cmi brought in $104.3m of very sticky sales for fy23 (and is extremely capital light -  and the acquisition they bought previously (ex engineering)brought in $12m 

So if status quo takes their sales to 350m 

They see both already growing (cmi - 2 yr ebit cagr 31% (short period i realise) and will also be very synergistic. 

Also their rev is also growing this year (last 2 yr (only listed 2 yes ago) rev cagr was 26.1%) 

The new acq helps to improve their margins (ebit marg will go from 10.3% to 11.7%) and also opens up new lucrative pipelines for them to grow and will also be very synergistic. 

Also their rev is also growing this year (last 2 yr (only listed 2 yes ago) rev cagr was 26.1%- all organic) 

The new acq helps to improve their margins (ebit marg will go from 10.3% to 11.7%) and also opens up new lucrative pipelines for them due to the synergy of the two businesses. 

More Areas of growth- 

• Ipg now can do the  entire infrastructure and construction for ev chargers (some just got put into glenbrook- it was a big process) - eg. Site assessment, infrastructure design, all the brand products needed - they sell, they then can manufacture the ev charging boards, and they can now also do all the engineering and construction with services and maintenance ongoing. 
• They are now getting a lot if data centre work - they can now design, provide, engineer, install, etc. 
• Huge tailwinds in electrification and energy transition 
• Busduct is a great new product and growing very well
• They installed a bus development unit and its performing above expectations- bringing in a strong pipeline of business 
• Expanded warehouse space bu 4000 sq m to free up 30% capacity in distribution centre
• Will continue to seek out accretive acquisitions - focussing on synergies, cultural fit, to enable them to expand product portfolio- decarbonisation, decentralisation, digitalisation 
• Plenty of room to grow
• To grow into new mkts and new geographies
• Increasing prices and to sell more
• Previous acq - gemtek and addelec integrated perfectly and is the reason they can do the whole gamut of ev charging stations 
• Very confident in h1fy24 guidance - ebit up approx 20% to 13.5-14m (pre impact of cmi acq - remembering it will be strongly accretive) - expect second half to be at least same as h1 - = 27-28m minimum (approx 20% growth) 

IPD Group is undergoing a capital raising.

Funds raised: $65m

Extra shares: 16.5m

Synergies: Expected but not included

Because I don't have time, hopefully someone can do an exact valuation. If you are inclined go to fightfinance for the methodology after clicking the answers.

Roughly we should expect a market cap from 364m to 429m and SOI of 103m shares.

Some important slides that will help

But I'm sure the market will try and drag this below $4.

As I already topped up at the recent lows, I think I have enough shares already - not sure if I take up the rights issue.

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UPDATED POST NEW ACQ AND AGM

https://www.canva.com/design/DAFyUtH4zx0/UlJ0wgFQQajeOJxEbTgcWw/edit?utm_content=DAFyUtH4zx0&utm_campaign=designshare&utm_medium=link2&utm_source=sharebutton

Great agm today. Will report on acq soon

Great agm today. Will report on the acq soon.

AGM is today.

Will be interesting how the share price performs given that guidance had been withdrawn from the last update in August and no updates since.

One to watch carefully.

Why i own this https://www.canva.com/design/DAFyUtH4zx0/UlJ0wgFQQajeOJxEbTgcWw/edit

https://www.drive.com.au/news/rollout-of-electric-vehicle-chargers-for-rural-australia-hits-a-snag/

Perhaps explains the recent weakness.

Think we might be seeing value again now the EV charger hype is going away.

[Held]

Good to see Mirabooka Investments still holding IPG amid the volatility

Even though the holding has risen, I noticed they did sell recently to rebalance the portfolio.

Aug 2023:

Sept 2023:

IPD group moves into the top 10 along with some heavy hitters such as James Hardie, Hub24, Breville and Carsales. Literally a minnow in the ocean. So I don't blame Mirabooka for selling a bit..

Mirabooka investments is an LIC under code ASX:MIR.

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Revenue of $226.9million, up 28.3% on pcp – Strong organic growth has been delivered predominantly by the existing product portfolio and growing market share – Strong statutory growth displayed by a 37.4% CAGR 

EBITDA of $27.7 million, up 37.1% on pcp – There have been ongoing strategic investments made during the year, some of which include: • Expansion of the Gemtek team

• Recruitment of specification focused business development managers across the country

• Operational expansion with a new 4,000sqm warehouse – While the Group has invested into these strategic initiatives during the financial year, the Group continued to deliver strengthening EBITDA margins, and a 44.9% EBITDA CAGR over the past four financial years 

So Check out IPG a steady pathway to growth. could add some units today with the expected bearish market..

Return (inc div)   1yr: 132.35%   3yr: N/A   5yr: N/A

In case no one noticed, IPD group got an upgrade from Bell Potter. Target price increase of 38% to $5.50.

Explains the share price going up 5% today to $4.80

See below for the estimates. Will definitely pin this to the wall and see if these estimates can be achieved

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Article from livewire

https://www.livewiremarkets.com/wires/asx-small-and-micro-cap-industrials-takeover-offers-galore

Seems IPD group rallying on the story and why in some cases I don't pay much attention to livewire these days.

[Held]

Not many acquisitions as claimed by many from what I can see. Unless I have missed something.

As comparison, look at Swoop holdings - 13 acquisitions.

[held]

Further adding to recent straws which NewbieHK has already summed up.

On the acquisition front, IPD had already rejected a few potential opportunities and are being selective.

Probably this is what the market may have also been nervous about judging by the price action in the last few weeks..

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Annualise out the HY results

Double the NPAT (8.0m) = 16.0m.

16.0m / 86.5m shares = 18.7c

Assign a PE of 20 to match its growth profile.

20 x 18.7c = 3.74

I think this is conservative with management already reporting Jan and Feb results were strong.

... and I heard from a mate tonight that MF are now recommending IPG, I think I understood for the first time, today at a buy price of $3.05

Shaw and Partners IPD Group Ltd (IPG)

Rating: Buy | Risk: High | Price Target: $3.53. Charging Ahead

Event: IPD Group held its inaugural AGM as a listed company yesterday, with three key developments: 1) 1H23 earnings guidance indicated the company is (once again) running well ahead of Shaw’s forecasts; 2) 2H23 commentary indicates rising investment in long-term growth initiatives; and 3) Long-time executive, board member, and substantial shareholder Mohamed Yoosuff is transitioning from CFO to Director of Strategic Development. After upgrading Shaw’s earnings estimates and revisiting Shaw’s valuation approach, Shaw’s price target has increased from $2.52 to $3.53 (19% TSR), and Shaw’s reiterate their Buy rating.

Recommendation: IPD is a high-quality business with strong growth prospects, ample cash generation, and a rock-solid balance sheet. Management’s track record includes ongoing operating improvements, consistent dividend payments, and multiple guidance upgrades post-listing. Shaw’s conservative (upgraded) forecasts the valuation remains attractive, with IPD trading on 17.8x FY23 PE (22% premium to peers’ 14.6x) and 9.2x FY23 EV/EBITDA (3% premium to peers’ 9.0x). Shaw’s believe a premium to peers is appropriate and Shaw’s also note the clear potential for accretive and/or strategic acquisitions. After upgrading Shaw’s earnings forecasts and updating Shaw’s valuation approach, Shaw’s target price rises from $2.52 to $3.53, and Shaw’s reiterate their Buy recommendation.

Since my mention of IPD Group here, I've seen the following brokers/fund managers start coverage:

Bell Potter

Shaw and Partners

1851 Capital

and finally Tamim Asset Management (ie: Ron Shamgar aka rocket emoji fund manager)

Definitely no longer under the radar.

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Noticed a huge spike on the share price on Friday breaking above the usual uptrend channel. But not many votes on any straws for IPD Group (less than 20)

When I saw the lack of votes on Strawman for IPD Group versus others such as AHC and CGS (which I only have small watch positions after noticing a few concerns), I started doubting my reasons for investing despite the clear tailwinds on offer and the beat on prospectus forecasts and hence ignored it till I noticed it was performing consistently against the market return. Probably should have put more in IPD here and ignored the rest.

Firstly why the lack of votes:

National focus? IPD only focus is within Australia while perhaps AHC and CGS has a more global focus. However IPD Group I think makes up for this as preferred "picks and shovels" provider for anything solar/electrical/energy/EV. As I highlighted in the AHC straw, there seem to be many competitors in the patient care space while CGS seems to be highly dependent on trials being progressed.

Guidance? Like Codan, IPD Group wouldn't provide guidance after FY22 results until November this month, at the 28 Nov AGM or maybe earlier.

Backend Disruption? Not sure why their backend operations are in Sri Lanka which carries some risk. However they stated their backup operations in Manilla is progressing as planned

Quiet Accumulation? Maybe other investors were not voting here to try and keep IPD group off the radar of other investors here while they quietly tried to buy the shares for themselves and thus not sparking a buying frenzy - I know, a bit far fetched :)

Why the rally?

Budget speech? Labour budget speech mentioned the importance of decarbonisation with emphasis on Solar, EV and EV infrastructure, which is something that fits well with IPD Group.

Tight register? Not many shares on issue hence demand for shares greater than supply.

Less perceived risk? IPD is a "picks and shovels" provider similar to mining services companies but for all things electrical. Furthermore they seem to have their specialisation in the area bedded down firmly.

Adding fuel to the fire, here's a link from Livewire markets on 1851 Capital's (sorry it's not Capital H as mentioned in the lithium forum post) recommendations including IPD group. Maybe this can explain the rally also.

Can't wait for November AGM. Hopefully some positive guidance. Going to ignore the low votes on straws here for now!

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