Stock of the Week – IGL

Fund Manager, Pengana Australian Equities Income Fund
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What’s the stock?

IVE Group (ASX: IGL)

How long have you held this stock?

We have held the stock since inception of the fund in August 2017.

What do you like about IVE Group?

Despite being relatively unheard of, the IVE Group’s (ASX: IGL) activities touch virtually every household in Australia, every week of the year. This printing company has transformed itself into an integrated marketing, print and communications service provider to a large and diverse range of blue chip Australian and global companies, including ANZ, Westpac, Coles, Woolworths, Tabcorp, Vodaphone and LÓreal.

Despite this impressive list of leading customers, its overall revenue base remains highly fragmented, both across individual customers and by industry exposure.

Given its origins as a print company, it is easy to consider its business as participating in a sunset industry. However that would underestimate the breadth of essential ongoing services and capabilities – in print, online, in store, and including the necessary supporting logistics behind its service portfolio.

We think the business is well run, and with the shares trading on a FY19 PE of c7.8x and offering a fully franked FY19 dividend yield of 9%, we believe it is a solid investment opportunity for the yield investor.

How is it better than its competitors?

IVE Group has led industry consolidation, which is improving the operating environment, with now fewer market participants (of which IVE Group is the dominant player) reducing previous excess capacity in the industry. Substantial new contract wins have underpinned investment in what is now an unrivalled production capability in Australia.

The company has recently undertaken two successful acquisition and integration projects, including the relocation and merger of Victorian Blue Star Display with Franklin Web’s retail display business and the acquisition of direct communications business SEMA and Sydney based Dominion Print Groups. Both integrations are predicted to expand capacity and grow revenue.

What do you like about its management? 

Management has a proven track record of delivering on targets. They have successfully repositioned the business over the past three or more years to align with evolving customer needs, both organically and via acquisitions.  Integrations have been seamless, and capital expansion projects have been underpinned by new contract wins, removing risk for shareholders.

What is the target price?

We don’t have target prices for our stocks, we prefer to focus on what the investment is delivering us today, which in this case is a 15% after tax cash earnings yield and a 9% dividend yield, with growth.

At what point would you sell it?

From a valuation perspective, we typically have a limit of a 6% after tax cash earnings yield that we apply across all investments and opportunities.  In addition, should evidence arise challenging our investment thesis, we would re-examine our position – examples of which could include management performance, the ability of the business to maintain/grow margins and market share.

How much has it added to your overall portfolio during the past 12 months?

In a difficult period for equities, IGL has been a top 5 contributor for the fund over the past 12 months, with the majority of its contribution coming in the form of dividend income.

Where do you see value?

With the shares trading at or below $2.10, value exists currently for IGL shares.  We would be high conviction buyers up to $2.30 and continue to see scope for upside potential beyond that level.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.

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