Fifteen years after battle for ICG came to naught, investors eye an endgame

The cottage industry of fact checking that established itself around Donald Trump’s every utterance while in the Oval Office may have dwindled under his successor. But those that remained on the job were forced into overdrive last Sunday when US president Joe Biden declared that “the pandemic is over”. They were quick to deride his claims. In the past four weeks alone, more than 51,100 lives globally have been lost, according to Johns Hopkins University.

Dr Mike Ryan, the Sligo native in charge of emergencies at the World Health Organisation, warned in an online seminar this week that with “considerable uncertainties” about the future course of the pandemic, the world could yet be “taken by surprise” by the emergence of a new variant. In the Republic, the Health Service Executive is reported to be bracing itself for a “twindemic” of Covid-19 and flu this winter that could put 20,000 people in hospital.

Still, as the world has sought to return to some level of normalcy this year, few companies on Dublin’s Iseq 20 have benefited from the pandemic years quite like Irish Continental Group (ICG).

The owner of Irish Ferries and the Eucon container shipping brand carries half of all cars moving between the Republic and Britain. It has a close to 30 per cent share of freight traffic.

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Car volumes on its fleet soared more than 600 per cent in the first half of the year as families rushed to get off these islands after two years of stop-start restrictions. Roll-on, roll-off (RoRo) lorries lugging freight jumped over 160 per cent. Both figures were boosted by ICG’s post-Brexit new service between Dover and Calais.

ICG remains a genuinely interesting company, with unique assets, strong routes and well managed

Revenue for the six-month period rose 86 per cent on the year to a record €263.1 million it said in its interim report last month. And the company swung into a pretax profit of €15.4 million from losses of €12.2 million and €11.2 million for the same periods in 2021 and 2020, respectively.

Shares in ICG, which has been led for the past three decades by chief executive Eamonn Rothwell, have surged about 35 per cent from a low point six months ago, shortly after Russia unleashed war on Ukraine. While the group’s fuel costs almost doubled on the year to €48.3 million amid a spike in oil prices and increased consumption — and fuel remains a major headwind — analysts have become more confident of late about ICG’s ability to keep a tight grip on costs and pass on rising expenses to customers.

Need there have been any doubt? Rothwell, after all, created the low-cost template for ferry operators in 2005 when he replaced more than 500 Irish Ferries employees with lower-paid agency crew and reflagged vessels to Cyprus — in the face of political and public uproar at the time.

Full-year earnings before interest, tax, depreciation and amortisation (ebitda) estimates for ICG across Davy, Goodbody Stockbrokers and Cantor Fitzgerald have jumped by an average of 16 per cent to €116 million in the past month.

The recent rally in ICG’s shares still leaves the stock trading at a 30 per cent discount to its long-term trading averages, relative to earnings, Cantor analyst Ian Hunter said in a note to clients this week. Hunter reckons that investors have yet to fully appreciate a rebound in ICG’s passenger and commercial traffic to pre-pandemic levels or Rothwell’s opening of a new corridor by putting three vessels on the Dover-Calais route in the past year.

He’s not alone in thinking the shares are adrift. “ICG remains a genuinely interesting company, with unique assets, strong routes and well managed,” said Noel O’Halloran, chief investment officer at KBI Global Investors in Dublin, whose funds hold ICG shares.

“But there’s frustration with ICG as a publicly-limited company that’s two-fold. Trading in the stock is very low. It’s very illiquid, with insiders and long-term institutional investors holding a material amount of the shares. This leads to it permanently being undervalued in the public markets, when you look at on either an earnings or free-cash flow basis.”

It’s 15 years since ICG was subject to three-way takeover battle between Rothwell, developer Liam Carroll, and a consortium comprised of the then Philip Lynch-led One51 group and Doyle Shipping. It ended in stalemate. Rothwell’s rivals’ shares were subsequently sold off — crystallising large losses — during the financial crisis to pay down debt associated with their stakebuilding.

Of the protagonists, Rothwell is the only one that remains on the shareholder register: with a 17 per cent stake (one that has been boosted by ICG spending almost €55 million over the past 3½ years buying back and cancelling its own stock).

Rothwell is now 67. And while associates say he remains as focused and driven as ever, investors are increasingly wondering about the endgame.

“Eamonn’s stake represents his lifetime’s work. So, he will want to monetise that at some point. Market participants are very aware that there is a potential transaction whereby he will look to realise his share in the business,” said Richard Flood, investment manager with Brewin Dolphin Ireland, whose clients own over 10 per cent of ICG.

Of course, Rothwell could retire in time and remain a shareholder under a new chief executive. Two ICG non-executive director appointments in recent times could point to a company intent on remaining on the market. Lesley Williams, a one-time head of equities at the Irish Stock Exchange, and Éimear Moloney, a former stock picker with Zurich Life, add market nous to the board. They also go some way towards addressing gender diversity at the top table — which is rightly a big thing these days for institutional investors.

But would Rothwell be able to entrust the stewardship of his equity investment with another chief executive when he eventually retires? Many observers think not. If he were to place his stake on the market, however, he would likely have to accept a slight discount to the going market rate.

“He’d only really make money if a buyer came in to take out the whole company and pay a premium to get full control,” said Flood.

O’Halloran agrees. “It’s logical that it ends up being bought by private equity money or becoming part of a large European infrastructure fund and Eamonn sells his stake — with insiders’ interests being aligned with other shareholders,” he said. “That’s where the betting money is.”