IVE Group (IGL) – cut or accumulate?

**This is an extract from the Market Matters Income Report from 26th Febraury.  Click here to get access to the full report and more

IGL sits in the MM Income Portfolio and reported softer than expected numbers this morning, as suggested above about an 8% miss. The stock is trading down ~10% at $1.91, this prompts the question, what to do, cut – accumulate or sit on our hands?

As a refresher, IGL is an integrated marketing business that takes care of all things related to corporate marketing, they have a great client list and their website is worth a look to see what they actually do: https://www.ivegroup.com.au/. However marketing businesses are exposed to the ebbs and flows of economic activity, and unfortunately for IGL, they sold less product this half. This can largely be put down to softer economic conditions.

Complex marketing, printing and the like requires large capital investment which means IGL has a high fixed cost base. Weaker revenue on a high fixed cost base puts earnings under pressure, and that’s what we saw today.

They also downgraded guidance for the full year for EBITDA of $75-79m, versus the $83m expected reflecting a softer 1H, which seems likely to continue as economic conditions tighten on the back of the coronavirus.

They declared a half year dividend of 8.6cps with the full year likely to be around 7.7cps. At this point, they look sustainable putting it on a fully franked yield of 8.5%, while trading on a P/E below 10x. While they are struggling to grow earnings in this environment and we should not expect dividend growth, a steady payout at these levels remains appealing.

The caveat here is around the impact of coronavirus, and the potential this has of hurting the second half, however looking through this impact, and while todays result is weaker than we hoped, we remain bullish on the position at current levels.

IGL Group (IVE) Chart

IGL Daily Chart

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