Friday 21 April 2017 by FIIG Research ripples_on_water Company research

IPG record a strong first half

IPG has recorded a strong first half FY17 with EBITDA increasing 42.6% to $14.4m. As the company is assessing a potential sale of the business, the bonds will likely continue to trade at around the call price, as they may be repaid as part of such a transaction.

Financial summary

Source: Company reports

Main points:

  • IPG had a strong 1H17 generating normalised EBITDA of $14.4m (up 42.6% compared to pcp) off the back of a 4.7% increase in revenue.  Last twelve month EBITDA was $16.2m and the company expects full year FY17 EBITDA to be around $19m
  • IPG advises that the Australian and Canadian agricultural seasons returned to average volumes while the New Zealand agricultural season was late and slow. New product exports continued to grow in the period with further product acceptance of the surface protection film
  • Raw material purchases improved with some better terms and pricing from a couple of key suppliers. The business has been impacted by the rise in power costs. AUD/USD exchange and resin pricing was relatively stable during the period
  • Net debt was $44.8m at 31 December 2016.  Secured debt has been refinanced to HSBC which provides AUD15m and NZD5m of receivables funding as well as AUD5m guarantees.  Bank guarantees for rental bonds were previously cash backed. The new facility will free up some cash and will provide a reduced funding cost
  • Total net debt to LTM EBITDA was 2.77x at 31 December 2016.  This compares favourably to the 4x covenant level

Potential business sale

As previously reported, IPG has hired Credit Suisse to assess a potential sale of the business. A dual track sales process has now commenced.  IPG is majority owned by private equity investment firm Advent Private Capital, which initially invested in 2008.

The business has successfully weathered a period of harsh operating conditions, and is now performing well.  Advent’s potential intention to realise its investment at this point therefore is not surprising, particularly given its relatively long investment period. AFR sources suggest the business may be worth as much as $200m.

The outstanding 7.30% 29 September 2019 bonds may be repaid as part of such a transaction. The bonds therefore will likely continue to trade at around the call level.

The bond is callable:

  • Anytime until September 2018 at 102%
  • Anytime after September 2018 to maturity at 101%

IPG must give a maximum of 30 and minimum of 15 days’ notice to redeem the notes. There is a change of control provision in favour of noteholders at 101%. This is not applicable under an ASX IPO

Full financial results are available for investors on the IPG website. Please contact your FIIG representative for a log in.