IVE Group’s (ASX: IGL) share price breaks above the pre-pandemic high level

Behzad Golmohammadi Behzad Golmohammadi, November 9, 2022

IVE Group (ASX: IGL) operates as a holistic marketing company in Australia. It’s breadth of offerings range from idea generation to execution across design, print, mobile and interactive media. It provides marketing mail, call centre services, printing catalougues and marketing materials as well as data analytics and customer experience strategy. 

 

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In a recent development, IVE Group’s share price has broken its resistance level of $2.55 (the blue line on the chart), which was also the highest level the stock traded for prior to the pandemic. The significance of this move grants us an investigation into the reasons behind this strength to see if we can expect the share price to continue its advance. 

 

IVE Group

IVE Group, Weekly Chart in Semi-log Scale (Source: Metastock)

 

IVE Group’s revenue has fully recovered 

IVE Group’s FY22 results showed its revenue has recovered to the pre-COVID levels of above $700m with a net income of $26.9, which was still below the FY19 earnings of $31.3m. Despite a 15% revenue increase year-over-year, FY22 earnings were hurt by lower gross profit margins due to contractual timing differences to pass on paper price increases. 

 

Ovato’s selected assets acquisition to boost IVE Group’s earnings 

In September 2022, IVE Group completed an acquisition of Ovato’s certain printing and finishing assets for $16m, with further $22m integration and capital expenditure costs expected to be incurred in the next 18 months. Ovato is a large print producer of catalogues and publications in Australia and it’s IVE’s largest competitor in the print business. 

IVE Group expects the integration of Ovato’s assets into IVE’s existing operations to generate meaningful synergies and be EPS accretive in FY23. IVE had previously announced a FY23 underlying earnings outlook of $36m. With the Ovato transaction, the company now expects a 35% increased to its previously implied underlying earnings per share of 23 cents for FY23. 

 

IVE Group is attractively valued 

Based on consensus analysts estimate, IVE Group is expected to generate an EBITDA of $106 and earnings per share of 26 cents in FY23, with further 10% yearly growth rates expected for FY24 and FY25. Based on these estimated numbers, IVE Group’s stock is trading at a forward P/E multiple of 10x and EV/EBITDA multiples of 5.6x and 5.0x for FY23 and FY24 respectively. Pretty cheap in our book. 

Following the Ovato transaction, IVE Group undertook a $20m equity capital raising at $2.25 per share. This amount added to the company’s cash at bank of $67m as of 30 June 2022 put IVE Group in a strong balance sheet position to fund its future organic and inorganic growth. 

 

Offering an attractive dividend yield 

IVE Group’s dividend policy has a target payout ratio of 65-75% of its underlying net profits after tax (NPAT). The company paid 16.5 cents in dividends from the earnings per share (EPS) of 19 cents made in FY22. The underlying NPAT for the year was $33.1m, which implied an underlying earnings per share of 23 cents. 

The company expects a 35% higher underlying EPS for FY23. So we can expect at least the same dividend payout of 16.5 cents per share for FY23, which gives the stock an attractive dividend yield of 6.3% at the current share price of $2.61. 

 

How to play IVE Group’s stock 

IVE Group’s share price has broken the resistance level of $2.55 (the blue line on the chart). $2.55 was also the highest level the stock traded for prior to the pandemic. So breaking above this level indicates a strong bullish sentiment on the stock. 

As such, we think prices near $2.60 are attractive. We expect the share price to continue its advance within its two-year channel (the green lines on the chart) to reach the top of the channel at $3.50 in the next few months. 

 

Stop loss of $2.50 

A confirmed break below $2.50 would mean the share price has broken back below the important $2.55 level, and it significantly reduces the chances of meaningful share price advances in the short term. 

Long term investors and yield junkies can use the equity capital raising price of $2.25 as their stop loss level. This is to make sure they won’t be whipsawed out of their positions by the current volatile market. 

 

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IVE Group’s (ASX: IGL) share price breaks above the pre-pandemic high level 1

 

 

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