As the investment spin-out of IAWS, One51, reported solid year-end results last week, shareholder attention has now turned to the group’s intention to float on the stock market. Irish co-operatives own close to 30% of the company, valued at almost €80m.

Shareholders, including farmers and co-ops, are being asked to vote at an EGM on 21 April to enable the board proceed with an IPO which includes its plan to transfer up to 20% of the company to Canadian investors.

The plan is to issue up to 150m additional shares, taking ownership of the remaining 33% of a Canadian acquisition, raise additional finance through an IPO and receive a cash injection from its Canadian partners.

Last July, One51 along with two Canadian equity partners (CDPQ and FTQ), acquired IPL, a north American plastics group, for a total consideration of CAD$290m (€194m) and took on CAD$155m debt (€103m). One51 acquired a 67% stake and has now agreed to buy out the equity partners in exchange for 20% of One51 and a cash injection of €20m.

The proposal will almost double the amount of shares in issue which would see the co-op ownership fall from 30% to around 16%. While additional shares may be seen as diluting the current share price of €1.65-€1.70, the outcome is more complex.

Firstly, shares are currently traded on the grey market which matches buyers with sellers, which has limited liquidity compared to one of the main stock exchanges such as the ISEQ. That said, while there has been active trading over the past year, with almost 25% of the total shares exchanging hands, there has really been only one buyer setting the price –Dermot Desmond.

Secondly, it is understood that around 50m of the proposed 150m additional shares to be issued will be allocated to the Canadian shareholders of IPL in a deal that will make them direct investors in One51. In return, One51 will receive €20m in cash and lose higher costing debt.

The plastics and environmental group grew revenues 32% to €366m last year while earnings (EBITDA) increased 67% to €36.1m. Year-end net debt increased to €120.3m, but is still low at 3.3 times earnings.

Plastics

This division is the main driver of performance and future growth at One51. It consists of One Plastics (OPG) and IPL and manufactures a range of containers including wheelie bins and food and pharmaceutical packaging. This division had solid underlying performance last year which was boosted by strong demand for wheelie bins.

Plastics accounts for 63% of revenue and 78% of earnings. In 2015, revenues increased 89% to €231.8m, while earnings (EBITDA) increased 110% to €33.1m, driven by the acquisition of IPL and the full-year effect of Straight plc.

OPG is the largest environmental waste and recycling container business in the UK. It is currently investing €8m in Protech Plastics in Cork and expanding its manufacturing facility in China.The group is calling the recent IPL acquisition “transformative” as it significantly increases One51’s international reach along with providing a scalable platform for growth in North America. In the future, this division will account for more than 80% of revenues and earnings.

The full-year impact of the purchase of IPL would mean that revenues for the division would be €339.3m and account for 72% of the business. This would also have brought full year revenue to €473.5m and earnings (EBITDA) to €51m.

ClearCircle

The recycling business accounts for 37% of revenues and 22% of earnings. In 2015, revenues fell 13% to €134.2m while earnings (EBITDA) fell 15% to €9.1m as a direct result in the fall-off in scrap metal prices

Who is CDPQ?

One51 will also end up with 100% of IPL along with recognised investors in CDPQ and FTQ. CDPQ is a long-term institutional Canadian investor that manages funds primarily for public and semi state pension and insurance plans. It has over €200bn in funds under management and took a large stake in the Channel tunnel last year.

On the face of it, a flotation along with the cash injection and full ownership of IPL appears to be a positive step for the group. With IPL included, revenues on a run rate basis would be in the order of €470m and earnings north of €50m. The debt would be significantly reduced at year end.

It would then be down to the company to use the cash wisely to grow the business. Given the large number of privately owned companies and the highly fragmented nature of the market, there would appear to be lots of opportunities in both Europe and North America for management to grow earnings.

At a share price of €1.65, One51 currently has a market cap of €259m. By acquiring the balance of IPL along with the cash injection, there would be about €90m of fresh equity. Assuming it could then raise up to €50m more from a share issue, this could value the company at close to €390m with about 240m shares in issue.

For shareholders, it is a little less certain and will require a leap of faith. While a vote in favour at the EGM will allow the company to proceed with an IPO anytime before July 2017, the share issue price is the real unknown and therefore the dilution factor. This will essentially depend on the market on the flotation date.

However, given the nature of the original co-op investors, who received the majority of their shareholding for free and have witnessed the ups and downs of One51 over the years, they may be willing to take this leap and see liquidity come into the shares to allow them exit over time.

Future dividend

While all shareholders would see their ownership diluted, they would own a smaller slice of a much bigger pie. The final benefit of being on a main stock market would make One51 more interesting to institutional investors and a dividend would also be likely in the future.

The co-ops are understood to be supportive of this deal and would likely to cash in their investment over time as it is non-core.

With Desmond now believed to control 25% of the company and with a 75% majority of those present and voting at the EGM, it looks like the company will need Desmond on side to get this deal across the line.