The integrated marketing business trades on an Est 1-year forward PE of just 7.8x and a forecast yield of 8.7% fully franked over the coming 12-months, with FY25 likely to see strong earnings growth due to a full year of synergies from their Ovato acquisition in 2022 and a full 12 months from the Jak Pak acquisition they made in 2023. The concern around IGL that we’ve flagged previously was twofold.
- They are at the pointy end of the economic cycle, with marketing spend susceptible to sharp pullbacks when conditions toughen
- AI is an area that could disrupt their operations in the future, a very topical space.
However, IGL has done a very good job of taking opportunities in the sector when they’ve arisen (Ovato is the obvious example) and scaling their operation effectively. They got lucky during COVID, in so far as Government assistance was a huge help; however, looking forward, their earnings will likely grow at 7% in FY24, increasing by a further 18% in FY25 based on consensus forecasts. Stock prices follow earnings and given the very low valuation currently ascribed to this business, it’s easy to conclude that earnings growth could be amplified by an expansion of the PE.
In June, they reaffirmed FY24 guidance of underlying net profit after tax (NPAT) of $41-44m, saying that most parts of their business were performing well.
- Ultimately, we think IGL is priced for the risks mentioned above, and the stock is an attractive income opportunity with some growth over the next two years.
MM is now bullish on IGL ~$2.10
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