Former One51 shareholders facing the same old liquidity problem in new guise as IPL Plastics
FOR many years, shareholders in One51 couldn’t keep the company out of the headlines, generally for all the wrong reasons. What started off in 2005 as an investment vehicle led by charismatic businessman Philip Lynch went on to have a difficult evolution into a plastics company.
All the while, there was a common thread running through the high-profile shareholder spats and big-name takeover attempts — how would ordinary shareholders exit the company?
The name One51 is now gone and, following an investment in Canadian business IPL and a restructuring, a new entity named IPL Plastics listed on the Toronto Stock Exchange last year. Irish shareholders, a mix of co-ops, wealthy individuals and ordinary people, hold a 45pc stake in the firm. The other major shareholders are Canadian firms Caisse de Dupot et Placement du Quebec (CDPQ) and Fonds de Solidarite. Since the listing, the company has grabbed few headlines but the liquidity dilemma facing its 2,000 Irish shareholders remains the same.
A recent note on IPL by Scotiabank, a Canadian personal and commercial bank, gave some very frank insights into why the share price has fallen since IPO in June 2018 — and why it may struggle to climb back up.
Problems to hit the company since it listed include an increase in resin (raw material for plastic) pricing and bad weather hitting the sale of agricultural bins.
While acknowledging that the company is very actively trying to deal with the issues dragging down the share price, the bank has some reservations. “A proverbial fire has been lit, with management taking action to enhance its cost structure and optimise cash-flow generation,” said Scotiabank.
But some fundamental issues remain to be solved, including a lack of liquidity which dogged One51 for most of its 14 years.
“Despite the early success of its initiatives, we think IPL is still a show-me story. And, all told, a few disappointing quarters, a general (market) avoidance of highly levered (and less liquid) names, and a lack of near-term catalysts limit the upside, in our view,” said the analysts.
The report also flags that the company is unlikely to fulfil its IPO ambitions. “IPL’s 2021 financial targets appear out of reach,” said Scotiabank. “In its IPO prospectus, management laid out 2021 financial targets to grow revenue to between $725m and $775m and adjusted ebitda to between $110m and $120m on an organic basis.”
“At the end of 2018, IPL acquired Loomans Group, a highly automated consumer-packaging business in Belgium. Including Loomans, the mid-point of the initial targets suggests IPL should be able to generate revenue of $810m and adjusted ebitda of $125m in 2021.”
However, Scotiabank said it believed IPL would be challenged to achieve these numbers due to revenue challenges in 2019 and slowing economic growth.
Some long-term investors might be happy to wait out the ‘show me’ phase of IPL, but many long-suffering shareholders may feel they have looked on at IPL and its predecessor for long enough.
Chief executive Alan Walsh hoped he had solved One51’s old liquidity bind when the company decided to list in Toronto. However, the old Irish base remains stuck for a number of reasons, including the fact large institutional shareholders are not interested in buying up small tranches of holdings from small retail investors.
By all accounts, shareholders continue to make their dissatisfaction known to Walsh. Some observers believe the only way out for Irish investors would be for Walsh to find a buyer who would take them out in one fell swoop.
The stock does have plenty going for it, as the analysts point out, with Scotiabank calling the current valuation ‘undemanding’. IPL Plastics is trading at a discount to its peers, it points out.
One seasoned investor said that while plastics is not flavour of the month among investors, the underlying business remains strong. “There is an argument that says they are undervalued and the share price is undervalued, although the sector isn’t really in favour at the moment,” he said.
The company has previously attracted the interest of some of Ireland’s best business minds, including billionaire Dermot Desmond, beef baron Larry Goodman and dealmaker Seamus Fitzpatrick. At its current share price, it will attract attention once again, and while the Canadian shareholder base isn’t going anywhere, there could be some opportunity to unlock the Irish block.
Shares are currently trading at CA$8.69 (€5.97), having been listed at CA$13.50. Existing investors got five shares for every old One51 share, so at the current price old shares are now valued at €1.21.
This price will be a key stumbling block for any party interested in taking out the Irish shareholder base. Although One51 shares at one time traded at only a few cents, there were hopes for a much higher price, with CapVest offering €1.80 in a failed takeover attempt as far back as 2015.
What would make Irish shareholders jump now? The co-op shareholders are generally content to sit back and see where this unpredictable investment will take them next, but smaller shareholders are unlikely to have forgotten that €1.80 number.
A buyer would have to be willing to pay a premium on the €1.21 price, but it is highly unlikely that the premium would be enough to satisfy the One51 shareholder base.
So, for now, it is difficult to see any major changes to the IPL shareholder mix, despite the unhappiness festering among many of its early backers.