ING - Inghams Group

[hamli]

Anyone else considering this IPO?

Positive:
- Poultry steady increase year on year, vs red meat showing decline in recent years. Poultry viewed as a healthier choice.
- Due to tough quarantine regulation, little poultry is imported, so there is little competition.
- Market leader
- Reasonable PE ratio vs consumer staples sector

Negative:
- Government protective of local agriculture vs Asian foreign owners
- Little export opportunity for poultry - due to higher operating costs in Australia vs other foreign exporters.
- Growth in EBITDA is partly driven by cost savings (most likely once off) and partly through sales increase.

What do you people think?

 

[nioka]

Re: Inghams Group IPO

Anyone else considering this IPO?

Positive:
- Poultry steady increase year on year, vs red meat showing decline in recent years. Poultry viewed as a healthier choice.
- Due to tough quarantine regulation, little poultry is imported, so there is little competition.
- Market leader
- Reasonable PE ratio vs consumer staples sector

Negative:
- Government protective of local agriculture vs Asian foreign owners
- Little export opportunity for poultry - due to higher operating costs in Australia vs other foreign exporters.
- Growth in EBITDA is partly driven by cost savings (most likely once off) and partly through sales increase.

What do you people think?

I personally knew Bob and Jack Ingham in the early days of the poultry industry. I was in the industry at the time as a manager of an opposition business. They worked hard and built a great business. Bob was the organiser. You could talk with him most hours 7 days a week. Hard dealing but ethical. It was his management that made it a great company but it was a company run privately without the overhead of a public company structure. Over the years Jack became more interested in his race horses and left Bob to run the poultry business.

With Bobs retirement and the passing on of Jack a few years ago it is now a different kettle of fish. What sort of results from this point on is up to a new generation of management. The upper level of general management that made the business have aged and passed on.

The do dominate the industry at this stage but with the advent of Aldi and others into the retail market that may change. Chicken is still the best "meat" value in the food market and should hold onto that ticket for some time.

 

[Wysiwyg]

Re: Inghams Group IPO

Chicken is chicken to most people and not a niche product. Buying the cheapest chicken is the buyer of today and Inghams chicken (especially the cardboard box varieties) are the more expensive. These days it's less about reputation for quality, which is Ingham chicken, and more about price. Bit like buying Tassals smoked salmon or rib fillet steak if you're on 100k plus a year.

Saturated market? Scalable? Innovative? KFC contract?

 

[Value Collector]

Hey Guys,

I Just quickly scanned the offer document this afternoon, I wanted to see what their return on equity was, and it looks to me like the company has a negative equity position.

I haven't looked very deep at this yet, just as I said a quick scan, But does anyone know the reason for this eg have the owners extracted the equity and leveraged up the company prior to this listing?

 

[nioka]

Hey Guys,

I Just quickly scanned the offer document this afternoon, I wanted to see what their return on equity was, and it looks to me like the company has a negative equity position.

I haven't looked very deep at this yet, just as I said a quick scan, But does anyone know the reason for this eg have the owners extracted the equity and leveraged up the company prior to this listing?

In a case like this it is hard to put a dollar value that satisfies the bean counters. The organisation has contract growers and has no dollar value in the eyes of an auditor on that part of the organisation although it does have value there. The float is there for the Ingham family to realise a return on 50 plus years of nurturing a business. They will also be looking at their tax position. The value will eventually be decided by the market putting a value on the business based on what it will return to shareholders. All plant and equipment will have been written down to the maximum for tax purposes. It is probably a lot more valuable that the books will show.

The company should be valued on what it will do for shareholders from here on. You need to be a fly on the wall to work this out. If you need to eliminate risk then you sit back and buy after listing.

 

[hamli]

Tegel was offered at a lower P/E earlier on in year. Settled at ~5% gain on listing, had a nice rally, but now trading below IPO. Makes me question my earlier comment about a this IPO having a reasonable P/E.

Ingham is looking less attractive. I will probably choose to lock up my capital elsewhere, and monitor Inghams from the side line.

 

[nioka]

Tegel was offered at a lower P/E earlier on in year. Settled at ~5% gain on listing, had a nice rally, but now trading below IPO. Makes me question my earlier comment about a this IPO having a reasonable P/E.

Ingham is looking less attractive. I will probably choose to lock up my capital elsewhere, and monitor Inghams from the side line.

You can't compare Tegels with Inghams. Tegels are small fry in the Industry, Inghams are leaders and really are the big boys in the industry.

 

[galumay]

You can't compare Tegels with Inghams. Tegels are small fry in the Industry, Inghams are leaders and really are the big boys in the industry.

I am not sure that market share is a particularly useful metric. RFP, which is listed on the NSX has only about 5% of the market, but from my research would be one of the most profitable.

I havent taken the time to look at Inghams in any detail so I cant really comment on whether the IPO is attractive or not.

 

[So_Cynical]

You can't compare Tegels with Inghams. Tegels are small fry in the Industry, Inghams are leaders and really are the big boys in the industry.

Small fry in Aust but a major NZ player according to them.

Tegel Group Holdings Limited (NZX/ASX: TGH) processes approximately 50 million birds per year,
across vertically integrated operations in Auckland, Christchurch and New Plymouth. It is New
Zealand’s leading poultry producer, processing approximately half of New Zealand’s poultry, and
also manufactures and markets a range of other processed meat products

Tegal are exporting so why not Inghams? Tegal would surely be a T/O target for a listed Inghams?

 

[Value Collector]

Hey Guys,

I Just quickly scanned the offer document this afternoon, I wanted to see what their return on equity was, and it looks to me like the company has a negative equity position.

I haven't looked very deep at this yet, just as I said a quick scan, But does anyone know the reason for this eg have the owners extracted the equity and leveraged up the company prior to this listing?

Ok guys, so I think I may have found the reason behind the missing equity, and it's the magic of private equity.

In 2013, Bob Ingham sold the entire chicken Business and the associated properties to TPG Entities for $880 Million.

In 2014, TPG Entities sold all the property/ realestate for $550 Million to outside real estate investment trusts like charter hall, these assets included the office building, their feed mills, processing plants, distribution centres, hatcheries, grow out facilities etc.

Now the company rents these properties back on 20-25 year leases.

So now TPG ENTITIES, only have about $330 Million left in the deal, (they may have even got that back by getting the company to take on debt to pay them out)

So when this lists, TPG will be trying to sell 75% of the remaining indebted operating business, for $1.1 Billion, leaving them with 25% ownership.

So in short,

TPG paid $880M to Bob,

Then TPG got,

$550 Million from selling the realestate,
($400M potentially from leveraging the company)
$1100 Million from the listing
25% ownership in the listed business.

------------------

I am not saying any of this is wrong, just answers my initial query about where all the assets were.

The company will probably still operate as a sound investment if it is managed well into the future, but I think the realestate not being part of the deal anymore makes the margin of safety a lot smaller, if it were the original company with all the original assets I would feel better owning it.

 

[Value Collector]

. The float is there for the Ingham family to realise a return on 50 plus years of nurturing a business.

Nope, the Ingham family sold out in 2013, as I mentioned in the post above, this is a private equity deal, what is being sold here is an operating business that's be stripped of most of its hard assets and saddled with debt.

It's now an operating business that leases its facilities from the land lord.

I am still looking into it, it may still be a viable business model, but as I said above I would have rather bought it from Bob directly.

 

[luutzu]

Nope, the Ingham family sold out in 2013, as I mentioned in the post above, this is a private equity deal, what is being sold here is an operating business that's be stripped of most of its hard assets and saddled with debt.

It's now an operating business that leases its facilities from the land lord.

I am still looking into it, it may still be a viable business model, but as I said above I would have rather bought it from Bob directly.

Best to avoid things financial engineers have gone through, stripped assets off and replaced it with debt.

I might look into this after I'm done with PEP and Asaleo. So far though, it's the same game plan as Anchorage and PEP.

 

[Craton]

Ah, private equity, such a dirty term. Reminds of the lyrics, "...money for nuthing an' your cheques for free."

Ok guys, so I think I may have found the reason behind the missing equity, and it's the magic of private equity. <snip />

Thanks for the insight VC.

 

[Value Collector]

Best to avoid things financial engineers have gone through, stripped assets off and replaced it with debt.

I don't doubt that the company will generate cash, and if their management are good the company should be able pay a dividend and over time pay down debt and re establish a solid capital base, but yeah, its much less exciting than if they still owned all their restate and had low debt, and there is more scope for things to go wrong under the wrong management now.

Ah, private equity, such a dirty term. Reminds of the lyrics, "...money for nuthing an' your cheques for free."

Yeah, the equity goes private and the debt goes public, lol

Thanks for the insight VC.

Cheers

 

[luutzu]

I don't doubt that the company will generate cash, and if their management are good the company should be able pay a dividend and over time pay down debt and re establish a solid capital base, but yeah, its much less exciting than if they still owned all their restate and had low debt, and there is more scope for things to go wrong under the wrong management now.



Yeah, the equity goes private and the debt goes public, lol



Cheers

What does your Spidey sense tells you?

Mine tells me that Australian investors and super funds are about to have a billion more dollars of theirs looted in this one.

Somebody better put an end to this nonsense before the already struggling Australians have diddly from their professionally managed super funds to retire on.

btw, are there any other reports beside the Prospectus?

 

[Value Collector]

What does your Spidey sense tells you?

As I said if it is run well, it will do ok. I think the brand and the operating system and network they have is worth something, unfortunately they just don't own the land and buildings it sits on any more.

it would be like Disney selling the land under their theme parks, hotels and studios and renting it back on a 7% yield, sure they would still make money, and return on equity would probably rise, but their competitive position and safety would be significantly reduced, imagine when that lease is up, and another themepark operator (or steggles) bids for the new lease.

 

[Ves]

As I said if it is run well, it will do ok. I think the brand and the operating system and network they have is worth something, unfortunately they just don't own the land and buildings it sits on any more.

What happens, if at the end of the lease term, the owner of the land/building gets a better offer from Steggles or some other competitor?

 

[luutzu]

What happens, if at the end of the lease term, the owner of the land/building gets a better offer from Steggles or some other competitor?

As my Dad would say, if they hold the handle while you the blade; then when they move you either follow or you bleed.

 

[Value Collector]

What happens, if at the end of the lease term, the owner of the land/building gets a better offer from Steggles or some other competitor?

I am not sure, I haven't seen the leases, but unless their is some sort of option to renew or option to purchase built into it I guess the new lease on certain strategic properties could have a bit of competitive bidding for it, Hell if I was the competition I might bid for the new lease just to increase my competitions rent

 

[Ves]

I am not sure, I haven't seen the leases, but unless their is some sort of option to renew or option to purchase built into it I guess the new lease on certain strategic properties could have a bit of competitive bidding for it, Hell if I was the competition I might bid for the new lease just to increase my competitions rent

I might also pay a fair bit overs so they have to move elsewhere.

What if they have to move? Can they maintain production? I'm sure these kinds of processing facilities aren't exactly easy to find and there would be a lag time in getting up and running again, surely it'd be very crippling on an already indebted balance sheet (assuming it stays leveraged) if they have to cease some or all production whilst they move?

Wonder what the contingency plan is?