Small Caps | Mar 09 2023
This story features IVE GROUP LIMITED. For more info SHARE ANALYSIS: IGL
IVE Group continues to prove its strong market position, lifting guidance as integration of Ovato outperforms over the first half.
-Ovato acquisition sees IVE Group lift full year guidance after a better than expected first half
-Last year Ovato had gone into voluntary administration
-The outlook for print, which also troubled Ovato, remains a risk
By Danielle Austin
Updating full year guidance to account for contributions from the recent Ovato acquisition, IVE Group ((IGL)) is now targeting FY23 earnings of $120m and net profit of $41m.
This updated guidance implies an earnings contribution from Ovato of $11m, and a net profit contribution of $4m, with IVE Group reiterating its post-integration contribution targets of $28m and $15m, respectively.
Delivering multi-channel marketing and communications solutions from conception to execution, IVE group describes its core business as delivering creative services and data-driven communications.
Its offerings span print, mobile and interactive media, including the print and distribution of catalogues, magazines, and marketing and corporate communications materials, marketing automation and multi-channel solutions, data analytics and customer experience strategy, alongside outsourced communications solutions and management.
In the first half of the year IVE Group saw revenue lift 32% to $504m and underlying earnings lift 18% to $65m. Despite higher working capital and some one-off restructure and acquisition costs, the company closed out the period in a strong balance sheet position including $56m in cash and $98m in net debt.
With the company completing its -$16m acquisition of Ovato in September, Bell Potter has highlighted sizable risk from the IVE Group’s print exposure. The print operations now account for around 50% of group revenue, at a time when the print market remains in a gradual decline. The broker (Buy, target price $3.00) notes its forecasts do account for ongoing decline, but increased momentum would impact.
Bell Potter also sees risk in IVE Group’s concentrated customer pool, with 40% of group revenue attributed to around twenty major customers. Accordingly, the loss of a customer or reduction in demand from a key customer could drive an adverse impact on forecasts.
On the company’s first half, Bell Potter considers the better-than-forecast performance to be mostly driven by the core businesses, while acknowledging the integration of Ovato was progressing well. The broker expects IVE Group can deliver double digit underlying earnings per share percentage growth over the next three years, driven by single digit growth in the core business plus a strong contribution from Ovato.
Brokers see a compelling case
Despite IVE Group’s share price having rebounded strongly in recent years, PAC Partners (Buy) continues to find the investment metrics on offer still compelling. This broker expects Ovato will continue to drive momentum for the company moving forward as the acquisition is further integrated over the next eighteen months, and notes the business looks to add $28m to earnings once fully integrated.
Based on commentary from the company, alongside proven underlying growth, PAC Partners sees demand as remaining resilient post-covid. The company continues to benefit from particularly strong retail display, fulfilment and logistics demand, and expects ongoing recovery in the hospitality and tourism segments to continue to support the outlook.
Describing IVE Group as being “in the strongest competitive position ever”, Shaw and Partners (Buy, target price $3.47) found the company’s first half to be a stand out amongst its coverage. This broker likes the company’s strong market share in most of its operating segments and unmatched offerings.
Following some cautious price rises implemented in the current fiscal year, Shaw and Partners expects further rises in the near-term.
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