Irish Continental Group – Solid update highlights continued strength of both the Irish economy and ICG’s business model but risks remain on the horizon. “HOLD”
Irish Continental Group (ICG) issued a trading update to the 11th of November this morning.
The update was solid with the Group recording revenue of €288.9 million for the period, an increase of 3.1% compared with last year. Management have successfully navigated through the weakness in sterling largely due to the offsetting effect of sterling based costs. However, ICG’s non-hedged fuel policy coupled with the recent rise in energy costs have resulted in higher fuel prices for the company.
The Ferries division which accounts for 62% of revenue, reported sales of €184.4 million, 1.4% ahead of last year. The Group carried 385,100 cars, an increase of 2.2% and the Group carried 247,700 RoRo units, a 0.5% increase versus last year. The continued growth in car volumes is impressive when compared to the 6% decline in UK visits to Ireland this year and showcases the stickiness’s of ICG’s customers. With regards to the construction of the new cruise ferry W.B Yeats, management said the ship remains on schedule to be delivered in June 2018.
The Container and Terminal Division which accounts for 38% of revenue, reported sales of €111.2 million, a 5.9% increase versus last year. Container freight volumes were up 5.5% and units handled at terminals in Dublin and Belfast increased 3.2% year over year.
The Groups trading update highlights the continued strength of both the Irish economy and ICG’s business model. We continue to believe the stock is too expensive relative to its medium term growth outlook and we also feel there is a significant amount of tail risk associated with Brexit which the market is not adequately discounting for. Additionally, the c.30% increase in oil price since the summer could weigh on full year profitability. The stock trades on 18.8x next year’s earnings, 12.4x EV/EBITDA and offers a 2.3% dividend yield. We reiterate our recommendation “HOLD” with a price target of €5.15.
Darren McKinley, CFA
Senior Equity Analyst