Small Caps | 10:00 AM
IPD Group is seen emerging as a standout small-cap growth story, leveraging disciplined acquisitions, led by Platinum Cables, to accelerate earnings and deepen exposure to long-term infrastructure and electrification themes.
- Post late-2021 IPO, IPD Group has delivered impressive earnings growth
- Latest bolt-on acquisition Platinum presses a suite of positive strategic growth buttons
- Higher margins, complimentary services and scope to cross sell, boost appeal
- IPD is seen as positioned for megatrend growth, with scope for another acquisition
By Danielle Ecuyer
An impressive post IPO track record
Imagine a small-cap company (market cap $463m) with a five-year track record of growing revenue at around a 32% compound annual growth rate, with an equally impressive compound annual growth rate in EPS of 41%.
Enter IPD Group ((IPG)), capitalised at around $550m, which has grown organically and via strategic acquisitions, including the latest Platinum Cables, which has analysts aflutter with enthusiasm.
Unlike RCR Thomlinson, which fell upon hard times in 2017 by over-gearing the balance sheet and overextending its exposure to solar renewable energy projects, ultimately resulting in bankruptcy, IPD has made bolt-on acquisitions since its IPO in late 2021 not only to grow earnings but also to enhance its service offering and increase sectoral diversification.
The group is characterised as an electrical infrastructure and power distribution specialist, supplying products, systems and services to the energy, transport, industrial and commercial sectors.
A breakdown of the business units reveals four segments, Addelex, CMI Electrical, EX Engineering and IPD Technologies, which combined offer exposure to major megatrends including defence, urbanisation, sustainability, electrification and digital and technological transformation.
Major sectors captured in IPD’s exposure include data centres, electric vehicles' electrification charging, the energy transition, as well as more traditional sectors across commercial and industrial growth, infrastructure and mining.
Management highlighted in the FY25 results IPD Technologies’ work on Amazon data centres, the Mirvac Harbourside redevelopment and Sydney Airport, the Sydney Fish Market redevelopment, as well as bulk handling projects.
Latest acquisition tempers market concerns
Since its IPO, the group has acquired EX Engineering in July 2023 and completed the CMI acquisition in 2024. As highlighted by Taylor Collison, market concerns are likely to be alleviated by the latest acquisition of Platinum Cables for -$37.5m, compared with the uncertainty created around capital allocation and strategy following the CMI purchase.
That uncertainty, alongside a series of earnings misses which management attributed to cyclical factors including CMI in the FY25 results, contributed to a valuation multiple de-rating for the stock.
Platinum, which brings approximately $45m of revenue and $7.2m in earnings before interest and tax, having delivered around 10% annual revenue growth over the last five years, is viewed as more than just earnings accretive, it is strategically a positive.
The business operates specialist high-performance power, communication and optical fibre cables for the mining and resources sector. As noted by Moelis, the latest purchase offers scope for cross-selling opportunities across the existing IPD product portfolio.
There is also an engineering team providing technical support and nationwide sales coverage across 41 sites in NSW and WA for top-tier resource clients.
Shaw and Partners suggests Platinum will enhance the CMI cables business with no overlap in revenue between the two businesses. Current management will remain in place with an earn-out incentive of $7.5m (capped) and Platinum will continue to operate as a stand-alone business.
IPD aims to capitalise on sales synergies while concentrating over the longer term on efficiency gains through shared group services.
Taylor Collison is notably upbeat about the acquisition, which is described as reasonably priced at around 5.2 times earnings (EBIT) and is forecast to be 11% EPS accretive in FY25. The deal is debt funded, with $0.5m in scrip issued to non-vendor management.
Platinum is considered a niche business with a strong reputation and trading record, inferring the presence of an attractive competitive moat and a lower likelihood of encountering pricing pressure.
High-voltage cables necessitate a suite of ancillary services given they operate in challenging climatic environments. As such, maintenance and repair can represent up to two-thirds of revenue in years without major project activity, the analyst notes.
Platinum’s FY25 earnings (EBIT) margin was 16.1% versus IPD’s 11.1%, Shaw observes, with the pro forma FY25 earnings (EBIT) margin rising to 11.5% from 11.1% based on historical consolidated financials.
Gearing is expected to peak at around 0.8 times gross debt to FY25 EBITDA, with net debt peaking at around $30m and falling to $22m in FY26, on Taylor Collison's projections.
Management continues to look for further acquisition opportunities and, with gearing well below the board’s leverage limit of 1.5 times EBITDA, the latter believes another bolt-on acquisition of similar size to Platinum could be executed over the next six to twelve months.
With completion of the acquisition on December 31, Moelis stresses the growing diversification into infrastructure, industrial and resources sectors, now accounting for 32% of group exposure, with commercial exposure at 28%.
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