BUY HOLD SELL – IVE Group (ASX: IGL)
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IVE Group (ASX: IGL) – Scanning through the ALL ORDS spreadsheet for the top performers over the last month, IVE group stood out as one that has flown under the radar. Up an impressive 380% since its March low. Solid fundamentals and a recently simplified business structure.
It is essentially a marketing company. The tagline from the website adds a bit more gloss and flavour but that is the long and short of it. Catalogue production/letterbox distribution, publications, in store retail display/point of sale, data driven personalised communications and packaging its main operations.
Major customers are in the retail space: supermarkets, health/personal products, food and beverages. Coles, AMP, Foxtel, NAB, Woolworths, McDonalds, TAH named in its end of year presentation.
The business has simplified its brand. In November 2019 the Group ceased going to market under four divisional brands (Kalido, Blue Star, Pareto, IVEO). The simplification coincided with a number of initiatives to further streamline and strengthen the operational structure of the business.
The acquisition of Salmat Marketing Solutions (now IVE Distribution), Lasoo and Reach Media New Zealand was completed in January. Nice bolt-ons but not likely to be hugely game changing. The acquisitions completed the final phase of its strategic roadmap to expand and strengthen its retail offering.
Most recently it reaffirmed guidance and announced a 10% buyback. IGL also hinted at the likelihood of dividends returning in 1H21. No material client losses throughout the year. Contract extensions for a large number of existing clients. Continued new business wins. Reduced labour cost base in response to business simplification some of the recent highlights.
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Main Observations:
- ROE of 14.5% is solid. Expected to edge higher in the next few periods. Good to see consistency.
- EPS forecast to nicely outpace revenue growth. IGL noted FY21 underlying earnings are likely to be consistent with FY20. Inclined to think that might be a conservative appraisal given guidance assumes the RBA’s bassline economic forecasts from August.
- A PE of 6.9x is on the cheaper side of things. Peers in WPP and EGG sit on 5.8x and 8.4x respectively.
- In November IGL hinted that it would resume dividend payments commencing with the 1H21 interim dividend. A juicy 11.6% yield is expected in FY21. That’s an impressive pay-out. Dividend growth also expected in future periods, with a 14.8% yield in FY3 forecast.
- A STRONG BUY and a HOLD recommendation from the brokers following IGL. It is trading at a 21.1% discount to the average target price.
- Overall, a robust fundamental blueprint.
WHAT SORT OF INVESTMENT IS IGL?
Despite the significant rise in share price from the March low and the lack of dividend in FY20, IGL is most certainly an income play. Since listing in 2016 share price growth has been non-existent.
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Trading in an extremely narrow range up until the start of 2020, 200c the magic number and price support. It fell almost 90% to a low of 27c in the COVID selloff. Not surprisingly, marketing campaigns were probably the first thing to be axed in the rush to preserve capital and lower expenses. Majority of its revenue in FY20 came from the retail sector which was hit hard during the pandemic. Now, with seemingly weekly upgrades to economic forecasts, conservative guidance expectations and large-scale marketing campaigns likely back on the table, the outlook is gaining appeal. Brand simplification at the end of 2019 helping drive operational efficiencies, new business acquisitions and contract wins adding more lustre to the value proposition.
TOP INVESTORS
An obvious skew to buying. Castle Point Funds Management picked up more than 9m shares at the end of October, otherwise nothing that exciting to take away.
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BROKER STUFF
Not much in the way of broker research for IVE Group. It is a relatively small company with a market cap of only $180m, which can put it out range for most broking houses.
TECHNICAL VIEW
IGL has bounced an impressive 380% from its March low of 24c. Now hovering around 120c. Currently 54% from its January high. The stock has moved from overbought territory into the middle of the RSI range. It does appear to be topping out in the short term. No obvious support given its sharp rise mid-November after its guidance/dividend update. On a positive note, it recently printed a ‘Golden Cross’, with the 50-day moving average crossing above the 200 day. Marcus has in the past labelled it an over-hyped technical event. A factor to be weighted up with the bigger technical picture. 3MA compliant, but only just.
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SHORTING
Short interest is at a relatively benign level at 1.04%. Interest peaked mid-August at 2.5%. The trend is encouraging with short positions falling consistently through the last quarter of the year. Speaks to a level of confidence in the company.
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CONCLUSION
No capital raising to dilute value, ~50% below its January high. Business simplifications/accretive acquisitions. No material contract losses, in fact, contract wins. Dividends returning, a strong fundamental picture. A diversified customer base that is recovering from the pandemic, with the worst/sentiment lows likely behind it. Hard not to think it is in a better position now than it was at the start of the year. It does appear to have more upside risk than downside. If support were to form around 120c we would advocate adding a small holding to an income portfolio. As a smaller company, a higher level of volatility should also be expected.