What a dilemma for iEnergiser Shareholders
“…The risks for shareholders holding on, or considering taking a stake, are clear. But there is the tantalising possibility that the boldness of those who do may be rewarded…”
Guernsey-based business services company iEnergizer (AIM:IBPO), a long-time investor favourite and strong dividend payer, took the market by surprise last month when it announced its intention to de-list from AIM, and in short order.
Founded in 2000 IBPO has grown to employ more than 17,000 staff across nine international delivery centres serving a broad range of industries including banking, healthcare, publishing, legal, financial services and gaming. But the move leaves investors with dilemma: to get out and leave IBPO to its majority shareholder, or stay in the hope of benefitting from possible recovery in the company’s value, which has plunged since the announcement. Others may even be tempted to buy-in at the current low price in advance of the de-listing.
IBPO’s continued growth
It’s worth taking a step back to summarise IBPO’s increasingly broad range of business services, which are organised into two divisions. The company’s Digital Content Transformation wing offers internal corporate communications solutions encompassing book composition, online learning, STEM, humanities and trade publications, and employee education systems. IBPO’s Business Process Solutions division offers a comprehensive suite of outsourced business services, including debt recovery, customer lifecycle management, back office support, fraud prevention, order management and document processing.
The company has recorded impressive results over the past five years, sustained through the economic turbulence of the past two years. IBPO reported record interim results for the six months ended 30 September 2022, boosted by revenue growth across an expanding range of services and a surge in customer contracts. The company says that inflationary pressures have actually worked in its favour, driving clients ‘to focus not only on cost reduction but also revenue retention’.
IBPO’s content division achieved revenue growth of 6.2pc to $40.2m in H1 2023 (H1 2022: $37.8m), with EBITDA margins up slightly at around 28pc at $11.5m (H1 2022: $10.7m). The company said content moderation demand is growing on the back of rising virtual content provision – spurred by the pandemic lockdowns – both in the education and commercial sectors.
The company’s business process outsourcing wing recorded revenue growth in H1 2023 of 30.6pc to $109m (H1 2022: $83.5m), with an EBITDA margin of 39pc or $42.9m (H1 2022: $33.7m). IBPO has ‘outsized exposure’ to fast-growing markets in sectors ranging from media and entertainment, telecommunications, banking, financial services, insurance, and telecommunications, and is seeking to capitalise on new opportunities in the developing market for content moderation and data tagging for artificial intelligence and machine learning applications.
Overall, the company’s revenue was up 24pc to $152m (H1 2022: $122.6m), its EBITDA up by $10.0m to $54.4m (H1 2022: $44.4m), resulting in EBITDA margin of 36.0pc, and its operating profit to $48.8m (H1 2022: $42.0m), an operating profit margin of 32.0pc. Profit before tax increased to $44.3m (H1 2022: $37.9m) and profit after tax to $41.2m (H1 2022: $34.3m). The increase in earnings allowed IBPO to declare an increased interim dividend of 11.07p per ordinary share, up from 8.12p in H1 2022.
IBPO breaks from AIM
The first major indication IBPO was becoming restless with its current status came in 2021, when the company announced it had embarked on a formal sales process. The period ended last September when ‘stronger trading during the process’ led the Board to withdraw after engagement ‘with a limited number of parties’.
But in retrospect the flirtation with the selling of the business set the scene for last month’s proposal to de-list from AIM. The proposal is conditional on the approval of 75pc of shareholder votes to be announced tomorrow (16 May 2023), but the outcome is something of a foregone conclusion, founder and CEO Anil Aggarwal, who holds 82.74pc of the company’s current issued share capital through the EICR (Cyprus) Limited vehicle, having confirmed to the Directors that he ‘intends to vote or procure votes in favour of the Resolution’.
Several reasons were given. IBPO believes ‘the continued quotation on AIM is unlikely to provide the Company with significantly wider access to capital’; that ‘the considerable cost, management time and the legal and regulatory burden associated with maintaining the Company’s admission to trading on AIM’ is prohibitive; and that the current free float, limited by the size of the founder’s holding, ‘does not, in itself, offer investors the opportunity to trade in meaningful volumes or with frequency within an active market’.
Assuming approval goes through, IBPO, in line with AIM rules requiring the company to give at least 20 clear business days’ notice of cancellation, will cease trading on the market by close of business on 24 May. The announcement did offer shareholders some continuity, the Board intending ‘to make arrangements for a Matched Bargain Facility to be established post Cancellation in order to assist Shareholders wishing trade in the Ordinary Shares post Cancellation’. Under the facility shareholders ‘will be able to leave an indication with the Matched Bargain Facility provider, through their stockbroker (as such provider is expected to be unable to deal directly with members of the public), of the number of Ordinary Shares that they are prepared to buy or sell at an agreed price. In the event that the Matched Bargain Facility provider is able to match that order with an opposite sell or buy instruction, they would contact both parties and then effect the bargain.’ IBPO added, however, that ‘that there is no guarantee that the Matched Bargain Facility will be established or as to the liquidity such a facility would afford the Ordinary Shares post Cancellation’.
The outlook, then, for shareholders seems, to say the least, highly uncertain. IBPO’s share price fell through a trapdoor in the day following the announcement, plunging from 310p to 68p. It cratered at 34p before recovering slightly to 50p at the time of writing, pushing the company’s market cap below £100m.
The bulletin boards reveal a fierce debate on whether to hold, sell, or even buy. For some the rapid departure of many larger and smaller shareholders is just what the company wants: a low price making it easier and cheaper to buy out remaining holders. There is scepticism regarding the liquidity the Matched Bargain Facility will offer, and disappointment that shares will no longer qualify for the ISA wrapper, which applies only to listed AIM shares.
But others say that IBPO now looks distinctly oversold. Those holding could benefit from a recovery in the value of what, after all, remains a successful company, with a record of paying good dividends. IBPO rose from 60p to more than 500p from 2019 to 2022. If the company did re-list in the future it might do so at a multiple of its current value. In his Fund Your Retirement podcast small cap specialist Chris Boxall points out that IBPO shareholders will continue to benefit from inheritance tax (IHT) planning benefits, which remain whether a company is private or listed. The IHT tax break is a business relief put in place for private family controlled companies to ensure they are not penalised when they are passed on by their founders.
IBPO is a company with solid foundations: growing revenue, a healthy balance sheet, and, with the advent of machine learning, defined opportunities for further growth. The risks for shareholders holding on, or considering taking a stake, are clear. But there is the tantalising possibility that the boldness of those who do may be rewarded.