Ann: FY19 Results Presentation, page-8

I work in the print industry and IGL (IMO) is overvalued. Investors valuing this at 10x PE in a declining industry is very optimistic. This should be valued at around 5x PE.

The industry is getting hammered by:

1. Volumes are decreasing. The shift of marketing budgets moving away from traditional print to digital.

2. Prices are getting crushed across the board. Large format, offset, everything.

3. Print companies are going bust everyday and the worst part is a lot of their employees are becoming print brokers on their own. These print brokers source prints from other print companies and the majority of them shop by price. Recently, a huge trade printer (the #2 player in Australia) went bust not because of their lack of sales but because they can't make a profit. In some orders, they made more profit from putting a margin on freight than their print orders alone!

4. Print is a capex intensive business. A printing machine can cost from a few hundred thousand to the millions and those machines needs to be maintained and few years down the road needs to be replaced with more "advanced" / expensive ones. You need to question their $10-20m maintenane capex because that might exclude capex to invest in new equipment.

5. Increasing raw material prices like paper and ink cuts into their gross margins.

6. Increasing competition from China. A lot of products are now getting sourced from China. They print it in China and get it sent here. Even printing companies with print facilities here are going overseas because it is cheaper and their quality is getting better every day because of the advancement of technology.

7. Lower barriers to entry. Back in the day, there was a skill barrier to entry in becoming a printer. You need real print skills and experience. Today, the machine does all the work. All you need to do is push a few buttons. Because of the lowered barriers to entry, there are a TON of online eCommerce print shops like EasySigns that are charging rock bottom prices and are happy with 10% margins. Just Google "promotional items", "business cards" and "digital printing" and see how much competition is out there.

...and the market is valuing this at 10x PE. Maybe for that 7-8% yield. You might as well buy into a REIT and get a safe 6-7% yield. Sacrifice that 1-2% yield and you will sleep better at night.

There are a few good things going for IGL and they can expand into other more favourable "traditional marketing" industries other than print. I might do another post on this in the future.