Saturday 20 January 2018

Investor: ICG's record in weathering choppy seas should not be belittled

 

One company that has weathered choppy seas and continues to perform is the ferry operator Irish Continental Group (ICG). Stock image
One company that has weathered choppy seas and continues to perform is the ferry operator Irish Continental Group (ICG). Stock image

Des Doyle

While many in the market are concerned about the fallout from Brexit, one company that has weathered choppy seas and continues to perform is the ferry operator Irish Continental Group (ICG).

In the immediate aftermath of the Brexit referendum, ICG's share price was hard hit, falling as much as 30pc. The share price has recovered most of this ground since though. Earlier this year, ICG reported earnings before interest, tax and other items of €83.5m for the year ending 2016 - up almost 11pc on 2015 and a new record for the group.

ICG is a very solid play on the Irish economy. Over the last 18 years, Irish Gross Domestic Product (GDP) has increased by 5pc on average while freight volumes for Irish Ferries have increased by 7.4pc on average. Looking forward, Irish GDP is set to expand by 4.6pc in 2017.

ICG has two operating divisions - ferries (which represents 85pc of profits), and container and terminal (which represents 15pc of profits). The ferry business operates five ferries out of Ireland, while the group has just agreed to sell a sixth ferry that was chartered to a New Zealand firm for €45m.

Through recent opportunistic moves, management has developed its ship chartering activities. The most important ship in the fleet is the Ulysses, which is considered the most reliable ship on the Irish Sea. To complement this ship and to cater for future growth, ICG has ordered a new €144m ship. This ship, to be delivered in June 2018, will have be able to carry 1,216 cars and 1,885 passengers - which is comparable in size to the Ulysses. In 2001, the Ulysses proved to be the key growth platform for ICG and this new ship looks set to replicate this.

Importantly, management's interests are aligned with shareholders. The ceo, for example, owns close to 15pc of the equity. This is particularly important for a capital-intensive business. When management writes a big cheque, one wants to make sure that they will follow up by generating the right returns.

The core ferry division has an enviable market position, with about 28pc market share in the roll-on/roll-off freight market between Britain and the Republic of Ireland. On the core Dublin-to-Holyhead route, which is favoured by hauliers and tourists alike, its market share is even stronger. It also offers excellent access to the Port Tunnel and Ireland's motorway network. On the other side of the Irish Sea, Holyhead is just two hours away from Liverpool and Manchester.

ICG's container and terminal division incorporates Eucon (Ireland's leading container shipping operator), Dublin Ferryport Terminals and Belfast Container Terminal. Both are poised to benefit from Ireland's economic growth with the terminal business in particular benefiting due to the fixed nature of its costs base.

The group paid a dividend of 11.58c a share for 2016. Since 2007, it has returned €350m to shareholders - an extremely impressive track record. While it will make the final payment for its new ship next year, the group's ability to generate cash flow should see it move back to a debt-free position relatively quickly.

In summary, ICG can be seen as a solid play on the Irish economy, has a strong market position, an excellent track record in returning cash to shareholders, and with the delivery of a new ship next year, it will secure a growth platform for the next decade and beyond. For investors looking for a long-term play on Ireland's economy, ICG stands out as an option not to be overlooked.

  • Des Doyle is an investment manager at Investec Wealth and Investment. See disclosures at www.investecwealthandinvestment.ie/disclosure

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