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saintex

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01/12/24

13:03

Post #: 76861664
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Originally posted by neoteric: ↑

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.

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Thanks for this update.
Really appreciated.

I need to go into more details, regarding recent developments for IPG.
In particular find out if they disclosed the earning decline for CMI in FY 24 (it could explain why there was such an earning accretion when they bought it, based on FY 23 results).

I am also surprised by the high level of their EBITDA margin.
If I remember well, another distributor of electrical materials (Rexel, global company) had a much lower margin.
Perhaps due to a lower level of own brand for Rexel.
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