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IPLP.T - IPL Plastic


BG2008
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If you have been reading the Berry thread, you would know that I kind of like the plastic packaging business

 

Enter IPL Plastic which has sold off quite a bit this year and is rightfully pretty cheap to begin with.  Too lazy at this moment to highlight the key points.  It has a little over 3x of debt and the equity is about 2x EBITDA.  If Berry Global were to buy them, they would probably pay 10x seller EBITDA which would probably amount to 5-6x buyer EBITDA after synergies.  So, it is a win win for both parties.  The debt should delever by 0.5x each year naturally due to FCF.  Unlike Berry, they have exposure to growing segments like recycling bins and certain food categories.  In short, Berry is a 0-1% volume grower and IPL Plastic is 4-6% in some of their categories.  IPL is a bit more lumpy than Berry. 

 

Why now?  Well, there is rumor that there are 3 PE firms looking to buy IPL.  I think a fair price of $8 CAD is very reasonable.  But at $5.17 CAD, it is likely worth $15-16 in 2-3 years if Berry buys them after they delever below 4x of debt.  I have asked Berry about IPL.  They said that they know of IPL and the deal makes sense.  But they are in a deleveraging phase and can't do anything for 18-24 months.  They agree that it would be nice to buy some categories that have organic growth volumes. 

 

I guess this is the kind of expertise that you develop after owning companies for 3 years.  Berry has proven that it is a very bond like business and that their "synergies" are real and not made up. 

 

If you subscribe to MOI, here's a https://moiglobal.com/kyle-mowery-202001/

 

IPL Plastics is a leading plastic packaging manufacturer that sells specialty products used in the food, consumer, agricultural, logistics, and environmental end-markets. IPL has no exposure to single use plastics and serves markets that should secularly grow over time.

 

The company IPO’d in 2018 and has since encountered a series of setbacks such as raw material inflation and declining volumes due to temporary end market challenges. These issues have sent the stock price down nearly 60%, and the shares recently traded at 6.0x 2020E EV/EBITDA with a 17% free cash flow to equity yield.

 

Kyle believes the issues are behind IPL, and 2020 is setting up to be an inflection year for the business. A large multi-year growth capital expenditure plan was finished in 2019 which will lead to strong cash generation and considerable de-leveraging from 3.0x to roughly 2.1x in 2020, increasing penetration of end markets will help the top line return to ~5% growth, and optimization initiatives will lead to stable margin performance going forward.

 

As the company executes, Kyle believes the shares will re-rate and close the large valuation gap between publicly traded competitors. At a conservative 8.0x EV/EBITDA and 9.5% free cash flow yield on 2020E numbers, IPL would be worth $14 CAD per share and 75% upside to recent prices.

 

I think a 80/20 allocation to Berry and IPL makes sense.  Berry is very diversified and very "bond like".  IPL is more "chunky" and is more event driven. 

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https://www.independent.ie/business/irish/three-private-equity-firms-line-up-bids-to-take-over-ipl-plastics-39209607.html

 

https://www.globenewswire.com/news-release/2020/05/18/2034842/0/en/IPL-Plastics-Inc-Announcement-Re-Media-Transaction-Speculation.html

 

IPL Plastics Inc. (“IPLP” or the “Company”) (TSX: IPLP) today stated that it is aware of media speculation regarding potential transactions that could involve the Company. The Company's policy is to refrain from commenting on market speculation. Furthermore, there is no additional material market update at this time as our recently issued Q1 2020 results, which were released and filed on May 13, 2020, included all relevant and necessary disclosures at this time.

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