Shaw & Partners with a new post-AGM price target of...

Shaw & Partners with a new post-AGM price target of $3.53.

Event

IPD Group held its inaugural AGM as a listed company yesterday, with three keydevelopments: 1) 1H23 earnings guidance indicated the company is (once again) runningwell ahead of our forecasts; 2) 2H23 commentary indicates rising investment in long-termgrowth initiatives; and 3) Long-time executive, board member, and substantial shareholderMohamed Yoosuff is transitioning from CFO to Director of Strategic Development. Afterupgrading our earnings estimates and revisiting our valuation approach, our price target hasincreased from $2.52 to $3.53 (19% TSR), and we reiterate our Buy rating.

Highlights

• 1H23 guidance came in well ahead of our prior expectations:

o Revenue$105.3m–$108.0m($106.7midpoint)vsShaws$98.3m(8%ahead).

o EBITDA $13.0m - $13.4m ($13.2m midpoint) vs Shaws $11.8m (12% ahead).

o EBIT$11.1m-$11.5m($11.3midpoint)vsShaws$9.7m(16%ahead).

o These figures indicate IPD is on track to strengthen EBITDA margins over the half,with an indicated 12.4% for 1H23 (vs Shaws previous 1H23F and FY23F of 12.0%),compared with 12.3% across FY22. Management noted margins ‘have remainedstrong [as] price increases from suppliers have been successfully passed on to themarket’.

• 2H23 likely to see costs rise on long-term capability investment – With no explicitguidance provided for 2H23/FY23, management instead highlighted the period will bemarked by: expansion into a second Sydney warehouse (a c.4k sqm site in Eastern Creek);continued inventory investment; and ‘investment into resources’ as Perth-based electric-vehicle (EV) solutions business Gemtek is expanded (with specialist salespeople beinghired nationally).
  

• MY Goodness – Mohamed Yoosuff (IPG’s largest shareholder) is moving from the CFOrole to Director of Strategic Development (focused on M&A and investor relations); hewill remain on the Board as an Executive Director. We note incoming CFO Jason Boschetti(currently GM of Finance) has been primed for the role since being brought into IPD twoyears ago, while Mohamed’s role within the business has typically been much broaderthan CFO (as evidenced by the role he will be fulfilling).
  

• Forecasts – We have updated our earnings forecasts to account for: the strength of the1H23 guidance; increased comfort around IPD’s ability to benefit from long-term growthdrivers; and elevated operating expenses in 2H23 as management builds out necessarycapability (in particular headcount). This results in 8/10/11% increases in FY23-25F EPS.
  

• Valuation – Despite the strong run in the share price over recent months, we continueto see the valuation as attractive given: management’s consistent execution (in particularpost-IPO); the operating quality of the business (including the ability to harness majorlong-term growth drivers); and the strength of the financials ($25m net cash, no debt).After revisiting our valuation, which remains based on a combination of DCF and peermultiples, and updating for the above forecast changes, our target price rises to $3.53.
  

  Recommendation

  IPD is a high-quality business with strong growth prospects, ample cash generation, and arock-solid balance sheet. Management’s track record includes ongoing operatingimprovements, consistent dividend payments, and multiple guidance upgrades post-listing.On our conservative (upgraded) forecasts the valuation remains attractive, with IPD tradingon 17.8x FY23 PE (22% premium to peers’ 14.6x) and 9.2x FY23 EV/EBITDA (3% premium topeers’ 9.0x). We believe a premium to peers is appropriate (see valuation section for more)and we also note the clear potential for accretive and/or strategic acquisitions. Afterupgrading our earnings forecasts and updating our valuation approach, our target price risesfrom $2.52 to $3.53, and we reiterate our Buy recommendation.