Lasoo Platform Expected To Reach Profitability By FY '28 As Traction Increases

Key Takeaways

• Expansion in packaging and Third Party Logistics is expected to drive significant revenue growth and enhance earnings.
  
• Integration and consolidation efforts aim to improve service offerings and efficiency, positively impacting operating costs and future earnings.
  
• Market challenges and uncertain political impacts, combined with nonrecurring projects and unprofitable investments, threaten IVE Group's revenue stability and margins.

Catalysts

Engages in the marketing business in Australia.

• The continued growth and expansion in the packaging sector, including a new facility in New South Wales and plans to increase revenue capacity to $150 million in five years, is set to drive significant revenue growth.
  
• The integration of Elastic into IVE's creative and content services is positioned to enhance revenue through expanded service offerings and synergies in the creative media space.
  
• The consolidation of business units into the new Kemps Creek supersite is expected to lead to operating efficiencies and reduced costs, which should positively impact net margins.
  
• The significant increase in Third Party Logistics (3PL) capacity, with a new facility providing a dedicated service for JacPak and potential for further business expansion, could boost revenue and earnings.
  
• The Lasoo strategy aims to achieve breakeven by FY '28 and reach $3 million NPAT by FY '30, indicating potential future earnings growth as the platform gains traction.
  

IVE Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming IVE Group's revenue will grow by 1.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.3% today to 5.8% in 3 years time.
• Analysts expect earnings to reach A$58.9 million (and earnings per share of A$0.36) by about April 2028, up from A$41.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.2x on those 2028 earnings, up from 8.5x today. This future PE is lower than the current PE for the AU Media industry at 22.2x.
• Analysts expect the number of shares outstanding to grow by 0.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.16%, as per the Simply Wall St company report.

IVE Group Future Earnings Per Share Growth

Risks

• Base revenue was down 3% due to a softer economy and the nonrecurrence of large one-off projects, which could impact overall revenue growth.
  
• There is uncertainty regarding the potential impact of a federal election on trading, economy, and ultimately, revenue and earnings.
  
• The Lasoo platform has not yet reached profitability, and while it is expected to break even by FY '28, such long-term investments can strain cash flow and drag on net margins if the growth projections are not met.
  
• The new JacPak capacity may require moving into more commoditized work, potentially putting downward pressure on margins, affecting earnings.
  
• The company is facing challenges in driving sustained revenue growth due to market conditions and needs substantial new business initiatives to achieve a turnaround, which poses a risk to future revenue stability.

Valuation

• The analysts have a consensus price target of A$3.1 for IVE Group based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$1.0 billion, earnings will come to A$58.9 million, and it would be trading on a PE ratio of 10.2x, assuming you use a discount rate of 7.2%.
• Given the current share price of A$2.29, the analyst price target of A$3.1 is 26.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.