Fund managers

Originally posted by saintex: ↑

IDP group worth revisiting ?This is one of the stocks which had a regular increase of its share price, but had a major correction recently (- 34 % vs its peak valuation).
Worth revisiting for different reasons :
- major beneficiary of electrification (for ex. 32 % of sales with ABB group),
- already large profitability (EBITDA margin of 13.9 %),
- high level of free cash flow (excluding working capital change, FY 24 free cash flow yield of 5.8 % and probably more around 7 % if we annualise their recent major acquisition, CMI).

After the decrease of the share price following a cautious earning guidance for H1 25 (- 8 % for EBITDA), 2 major shareholders have largely increased their holding : MA fin (from 5.5 % to 8.54 %) and 1 director (Mr Yoosuff who just bought 1 million shares on the market for an average price of 3.78 $).

@neoteric
Anything new for you in this story ?
Good that you mentioned before that CMI was "cyclical in nature". It may explain why its earnings decreased in FY 24.

IDP looks quite cheap to me now with a PE 24 of 16.4 x (which obviously did not include all the impact of CMI, consolidated only on 7 months).
The stock has returned to its level pre CMI acquisition (which had an earning accretion impact of 30 %), so it looks quite interesting (unless it was grossly overvalued pre CMI acquisition).

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Thanks for the update Saintex.

Yes, IPG looks interesting and there are a few points worth considering in my mind.

The Director sales in the last couple of months are not a good look in light of last week's trading update. Despite Mr Yoosuff repurchasing the shares he sold - I would much prefer Directors stay invested through favourable and unfavourable periods.

And there is something I'm learning about IPG, their base project work is not exactly predictable (commercial and infrastructure), it is cyclical much like new subsidiary CMI's earnings. We simply can't expect organic earning growth each year, it will be lumpy.

I guess the characteristic that attracted me to IPG is that they are predominantly a distribution business, about 90% of revenue being derived from products (and increasing more of their own products). My positive experiences investing in distribution businesses REH and SNL probably piqued my interest in IPG. If run well, these businesses can be great compounders by getting the range and service capability well refined over time.

My investment thesis with regard to IPG includes the business pushing up towards earning a NPAT margin close to 10%. This is double the margin of (what might be called) pure electrical service providers such as SXE and GNP who are similarly exposed to the electrification and energy transition theme. It might also come with lower operational risk than those providers who, like any contractor, can swing to a loss when a project unexpectedly encounters a problem. But, time well tell on that front.

I also expect more capital raisings and higher debt levels from here, as management appear to be keen to continue with their strategy of an acquisition on average each year.

I'd be interested to know your thoughts.