Is Indigo Pacific (IPA) ready to make a move?

[caiban]

One of City Pacific's projects, Indigo Pacific - IPA is showing signs of a real nice recovery after dropping in end of tax season selling. Looks like profits will be very strong and dividends should be excellent. I think there is potential for a real nice move here if it gets even some modest volume but I am an amatuer. ;) Am I on the right track? What do you think? Can anyone give me a reason not to add more? Thanks.

[wns]

Hi caiban,

Welcome to Sharetrader!

As far as I know, IPA are on track to make their forecast of $10m NPAT on $15m revenue for 04-05, as per their announcement on February 24th. From memory they intend to payout 75% as dividends. I don’t know if that kicks in this year or in 2005-2006.

Here's their issued capital...

IPA EQY 35,127,600 -- -- -- --
IPAAI EQY 34,900,000 -- -- -- --
IPAAK COP 21,190,000 -- -- 1.50 25/03/07
IPAO COP 21,032,400 -- -- -- 25/03/07

Notes:

Other quoted securities: IPAO - options Unquoted securities: IPAAI - restricted shares IPAAK - restricted options


So that would make estimated 04-05 EPS of $10,000,000 NPAT / 70,027,600 (common shares + restricted shares) = $0.1428.

With the share price at $1.01, that puts them on a PE of: $1.01 / $0.1428 = 7.07, and based on share price of $1.01, a dividend yield of 15.1% - if they payout 75% this year. ($0.1428 x 0.75 / $1.01 / 0.7). The division by 0.7 making it pre-tax.

I don’t hold any IPA directly myself but I hold CIY, and they hold 25% of IPA anyway.

FYI - not sure if you have seen it but there is a thread on CIY with lots of discussion.

[mark100]

Hi caiban, I spoke with Mitch Nielson (MD of ipa) a few weeks ago and he confirmed they were on track to make their forecast NPAT of $10m for FY05. So I bought some.
Also in the prospectus they said they wouldn't pay a div for the first full year of operations. I asked whether they may pay a div and he said the board were keen to start dividend payments and they are considering a paying a dividend in December.
Remeber this stock touched $1.90 last year and has fallen for no reason other than property been in everyone's bad books. Although I admit $1.90 was a bit expensive. But I reckon a return to $1.50 is likely over the next few months.

cheers
mark

[caiban]

Thanks for the replies! IPA is looking really good to me. I can't really understand why it remains so low at the moment... terrific upside potential especially if they decide to pay dividends in December.

Volume has been building slightly...it won't take too much volume to send this stock soaring! Feels like a winning hand. :D

Caiban

[wns]

Caiban,

Yes at current prices you will get a nice dividend yield - when they start paying one.

Have you checked out CPK? And for that matter CIY?

IPA traded as a listed company for just six weeks in FY04 and made $360,600 NPAT, so they are on a very high historic PE. However with a forecast NPAT of $10m they are on quite a low forward looking PE. That could partly explain the ‘low’ share price. There’s probably not many people who have heard of IPA either, that would be another reason.

CPK is in the same boat except on a much larger scale profit wise.

At current prices, CIY is on a similar dividend yield to IPA. CIY has a very profitable core business as well as a growing number of income streams that includes ownership of 25% of IPA and 53% of CPK.

[caiban]

Anyone know why this stock has not moved upwards lately? The share price does not seem to reflect the nice dividends they are paying 1/2 yearly. Doesn't seem to make much sense.

[thereslifeafter87]

It's in a very high risk business, with little potential upside - hence the low valuation.

Their business is high risk. Lending to property developers is a reasonably risky business even if you're doing it like CIY ie: only lending where you have a first mortgage.

IPA have second mortgages over development property. They are mezzanine financers, lending the final bit of cash developers need, at extremely high interest rates.

If a development falls over, they are left holding a worthless second mortgage - they lose their entire investment.

There is also little potential upside as they can only lend out as much money as they have (all their investments are equity funded). This means the amount of lending will grow only by the level of profit achieved in the year, less dividend payouts. Growth is therefore constrained, especially if they are paying out 75% of their earnings.

On the upside, the PE is low and and the dividend yield is high.

They are planning capital raisings in the future - which will dilute your holding, but they will probably make more in profits to compensate for this.

I thought about it, but then figured I'd be better off investing in the developer directly - so I went for CPK.

[caiban]

Thanks for your very insightful post "thereslifeafter87"... helps me understand a little bit more, which is always a good thing! :)

[caiban]

With options expiring on 25/3 (IPAO) am I correct in assuming that the options I hold are practically worthless (unless by some miracle IPA's price suddenly soars past $1.50)?