Ipsos Stock: The Share Price Drop Is Unwarranted (OTCMKTS:IPSOF)

Introduction

Ipsos SA (OTCPK:IPSOF) is without doubt one of the world’s largest polling and market analysis corporations with an asset-light mannequin. As some of the sought-after corporations in its section, Ipsos usually has strong money flows and can doubtless finish this 12 months with a internet money place. Though 2022 was sturdy when it comes to earnings and free money movement, the share value not too long ago moved south after an uninspiring Q1 replace.

Ipsos has its principal itemizing on Euronext Paris the place the inventory is listed with IPS as its ticker symbol. As there are presently simply over 44M shares excellent, the market cap of the corporate is roughly 2.2B EUR. The common each day quantity in Paris is roughly 75,000 shares and I’ll consult with this principal itemizing the place relevant. I’ll use the euro as base foreign money all through this text.

2022 was sturdy, however 2023 began with a false observe

Earlier than discussing the Q1 replace, I want to “set the scene” by having a better have a look at the FY 2022 outcomes. And 2022 positively was 12 months for Ipsos as its income elevated by in extra of 10% to 2.4B EUR which had a really constructive affect on the gross revenue which elevated by virtually 15% to 1.59B EUR. And whereas the opposite working bills additionally elevated, the working revenue got here in about 14% greater than in 2021.

That 314.7M EUR in working revenue was subsequently decreased by a number of million Euro to account for the amortization of intangibles, partially offset by a non-operating revenue, leading to an adjusted working revenue of 310M EUR. As Ipsos has a reasonably clear steadiness sheet with a quickly lowering internet debt and gross debt degree, the online finance bills had been fairly benign, leading to a pre-tax revenue of simply over 293M EUR and a internet revenue of 220.6M EUR, of which 215.2M EUR was attributable to the widespread shareholders of Ipsos. This labored out to an EPS of 4.87 EUR per share.

As talked about within the introduction, Ipsos is an asset-light firm and this certainly means its money flows are very strong as properly. As you’ll be able to see beneath, the corporate reported an working money movement of 402M EUR earlier than taxes and curiosity bills. It owed about 73M EUR in company taxes and it spent about 14M EUR on curiosity bills (that are booked as a financing exercise slightly than an working money movement). This implies the underlying working money movement earlier than lease funds was 315M EUR.

Ipsos additionally paid about 37.5M EUR in lease funds and it paid 1.4M EUR in dividends to non-controlling pursuits. Simply to err on the conservative facet, I’ll deduct all the 5.4M EUR in internet revenue attributable to non-controlling pursuits from the equation, which suggests the underlying adjusted working money movement was 272M EUR.

The picture above reveals the whole capex was simply 55M EUR, leading to a internet free money movement of 217M EUR. Barely decrease than the reported internet revenue, primarily as a result of the whole capex and lease funds exceeded the depreciation and amortization bills.

A wonderful end result, indicating Ipsos is presently buying and selling at a free money movement yield of roughly 10%. So I used to be fairly shocked after I noticed the share value lose about 15% after Ipsos reported on its Q1 outcomes.

Maybe the market was shocked by Ipsos’ 2.9% revenue decrease however the firm had truly warned for this. Q1 2022 was nonetheless boosted by COVID-related market research and this tailwind fully disappeared within the first quarter of this 12 months. Excluding the affect of these COVID-related contracts in 2022, the Q1 2023 income would even have elevated by 0.6%.

Moreover, the corporate does consult with a brief slowdown within the commissioning of latest analysis and polls from its tech purchasers, but it surely additionally highlighted the time lag between getting new contracts and really producing a income from these contracts. It offered China for instance: the Q1 income in China decreased by virtually 4% however the order ebook elevated by in extra of 13% and people new orders shall be accomplished later this 12 months, indicating we must always see a severe uptick within the China-derived income later this 12 months. And it’s not simply China: Ipsos talked about its complete order ebook measurement elevated by 3.3% in Q1 (excluding the COVID associated contracts) with an acceleration seen in direction of the tip of the quarter because the order ebook picked up by 6.4% in March.

Regardless of the weak lead to Q1, Ipsos confirmed its full 12 months steering to realize an organic revenue growth of 5% and an working margin of 13%. This may point out a rise of the working revenue by about 10-15M EUR and lead to an EPS enhance of 15-22 cents per share (excluding the affect of share repurchases this 12 months).

Funding thesis

I feel the selloff on the again of the weak Q1 outcomes is a chance, because it seems to be like the corporate stays upbeat for the remainder of the 12 months, backed by a powerful order ebook efficiency. Let’s not neglect Q1 historically is the weakest quarter of the 12 months as properly, so we must always see an uptick in income all year long. On the Q1 convention name, administration indicated it expects the Q2 income to compensate for the decrease income in Q1.

And because the firm’s steadiness sheet is fairly clear once more (with a internet debt of simply 23M EUR as of the tip of Q1), it is ready to pursue extra M&A and on the Q1 convention name, the Ipsos administration indicated it has “a variety of LOIs out in the intervening time.”

On the present share value, Ipsos is buying and selling at a free money movement yield of roughly 10% whereas the EV/EBITDA a number of excluding lease funds is roughly 5.5. These two components make the present Ipsos SA share value fairly enticing to provoke a protracted place. I presently don’t have any place, however will keep watch over the inventory and maybe write some (out of the cash) put choices.

Editor’s Be aware: This text discusses a number of securities that don’t commerce on a significant U.S. alternate. Please concentrate on the dangers related to these shares.